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Page 1 of 67 of Publication 505 13:46 - 5-APR-2006

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Publication 505
(Rev. February 2006) Contents
Cat. No. 15008E
Introduction . . . . . . . . . . . . . . . . . . . . . 1
Department
of the
Treasury
Internal
Tax What’s New for 2005 . . . . . . . . . . . . . . .

What’s New for 2006 . . . . . . . . . . . . . . .

2

2
Revenue
Service
Withholding Reminders . . . . . . . . . . . . . . . . . . . . . .

Chapter
3

and Estimated 1. Tax Withholding for 2006 . .

Salaries and Wages . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
4
4

Tax Tips . . . . . . . . . . . . . . . . . .
Taxable Fringe Benefits . . . .
Sick Pay . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
14
14
15
Pensions and Annuities . . . . . . . . . . . 15
Gambling Winnings . . . . . . . . . . . . . 16
Unemployment Compensation . . . . . . 16
Federal Payments . . . . . . . . . . . . . . 16
Backup Withholding . . . . . . . . . . . . . 17

2. Estimated Tax for 2006 . . . . . . . . . . 18

Who Does Not Have To Pay
Estimated Tax . . . . . . . . . . . . . . 19
Who Must Pay Estimated Tax . . . . . . 20
How To Figure Estimated Tax . . . . . . 22
When To Pay Estimated Tax . . . . . . . 24
How To Figure Each Payment . . . . . . 25
How To Pay Estimated Tax . . . . . . . . 28
Illustrated Examples . . . . . . . . . . . . . 29
Worksheets for Chapter 2 . . . . . . . . . 33
2006 Tax Rate Schedules . . . . . . . . . 37
2006 Standard Deduction Tables . . . . 42

3. Credit for Withholding and

Estimated Tax for 2005 . . . . . . . . . . 43
Withholding . . . . . . . . . . . . . . . . . . . 43
Estimated Tax . . . . . . . . . . . . . . . . . 44
Excess Social Security or
Railroad Retirement Tax
Withholding . . . . . . . . . . . . . . . . 44

4. Underpayment Penalty for

2005 . . . . . . . . . . . . . . . . . . . . . . . 47
General Rule . . . . . . . . . . . . . . . . . . 47
Exceptions . . . . . . . . . . . . . . . . . . . 48
Figuring Your Required Annual
Payment (Part I) . . . . . . . . . . . . . 49
Short Method for Figuring the
Penalty (Part III) . . . . . . . . . . . . . 49
Regular Method for Figuring
the Penalty (Part IV) . . . . . . . . . . 50
Farmers and Fishermen . . . . . . . . . . 53
Waiver of Penalty . . . . . . . . . . . . . . . 53

5. How To Get Tax Help . . . . . . . . . . . 61

Index . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Introduction
The federal income tax is a pay-as-you-go tax.
You must pay the tax as you earn or receive
income during the year. There are two ways to
Get forms and other information pay as you go.
faster and easier by: • Withholding. If you are an employee,
Internet • www.irs.gov
your employer probably withholds income
tax from your pay. Tax may also be with-
held from certain other income, including
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pensions, bonuses, commissions, and
gambling winnings. In each case, the
amount withheld is paid to the Internal
Revenue Service (IRS) in your name.
• Estimated tax. If you do not pay your tax
through withholding, or do not pay enough
tax that way, you might have to pay esti-
mated tax. People who are in business for
themselves generally will have to pay their
tax this way. You may have to pay esti-
mated tax if you receive income such as
dividends, interest, capital gains, rents,
and royalties. Estimated tax is used to pay
not only income tax, but self-employment
tax and alternative minimum tax as well.
This publication explains both of these methods.
It also explains how to take credit on your return
for the tax that was withheld and for your esti-
mated tax payments.
If you did not pay enough tax during the year
either through withholding or by making esti-
mated tax payments, you may have to pay a
penalty. The IRS usually can figure this penalty
for you. This underpayment penalty, and the
exceptions to it, are discussed in chapter 4.
Comments and suggestions. We welcome
your comments about this publication and your
suggestions for future editions.
You can write to us at the following address:
Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6406
Washington, DC 20224
We respond to many letters by telephone.
Therefore, it would be helpful if you would in-
clude your daytime phone number, including the
area code, in your correspondence.
You can email us at *taxforms@irs.gov. (The
asterisk must be included in the address.)
Please put “Publications Comment” on the sub-
ject line. Although we cannot respond individu-
ally to each email, we do appreciate your
feedback and will consider your comments as
we revise our tax products.
Tax questions. If you have a tax question,
visit www.irs.gov or call 1-800-829-1040. We
cannot answer tax questions at either of the
addresses listed above.
Ordering forms and publications. Visit
www.irs.gov/formspubs to download forms and
publications, call 1-800-829-3676, or write to the
National Distribution Center at the address
shown under How To Get Tax Help in the back
of this publication.
What’s New for 2005
You should consider the items in this section
when figuring any underpayment penalty for
2005. Figuring the penalty is discussed in chap-
ter 4.
Penalty rate. The penalty for underpayment
of 2005 estimated tax is figured at an annual rate
of 6% for the number of days the underpayment
remained unpaid from April 15, 2005, through
Page 2
September 30, 2005, and 7% from October 1,
2005, through April 15, 2006.
If you were affected by Hurricane Ka-
!
CAUTION
trina, the due dates for the September
15, 2005, and January 17, 2006, re-
quired installments are both extended to Febru-
ary 28, 2006. If you were affected by Hurricane
Rita or Wilma, the due date for the January 17,
2006, required installment is extended to Febru-
ary 28, 2006. See the 2005 Instructions for Form
2210 for more information.
What’s New for 2006
This section summarizes important changes
that could affect your estimated tax payments
for 2006. More information on these and other
changes can be found in Publication 553.
Additional exemption for housing individu-
als displaced by Hurricane Katrina. You
may be able to claim an additional exemption
amount of $500 per person (up to $2,000) if you
provided housing to a person who was dis-
placed from his or her main home as a result of
Hurricane Katrina. See Taxpayers housing indi-
viduals displaced by Hurricane Katrina in chap-
ter 2 for more information.
Personal exemption and itemized deduction
phaseouts reduced. The phaseouts of the
limitations on personal exemptions and itemized
deductions are reduced by 331/3%. See chapter
2 for more information.
Earned income credit (EIC). You may be
able to take the EIC if:
• A child lived with you and you earned less
than $36,348 ($38,348 if married filing
jointly), or
• A child did not live with you and you
earned less than $12,120 ($14,120 if mar-
ried filing jointly).
For more information, see Publication 596,
Earned Income Credit (EIC).
Retirement savings plans. The following
paragraphs highlight changes that affect individ-
ual retirement arrangements (IRAs) and pen-
sion plans. For more information, see
Publication 590, Individual Retirement Arrange-
ments (IRAs).
Traditional or Roth IRA contribution lim-
its increased. The contribution limit to a tradi-
tional or Roth IRA for 2006 is increased to
$5,000 if you are 50 or older.
Traditional IRA deduction limits increased.
For 2006, if you are covered by a retirement plan
at work and your filing status is married filing
jointly or a qualifying widow(er), your deduction
for contributions to a traditional IRA will be re-
duced (phased out) if your modified adjusted
gross income (AGI) is more than $75,000 but
less than $85,000.
Additional salary reduction contributions
to SIMPLE IRAs. For 2006, additional salary
reduction contributions can be made to your
SIMPLE IRA if you meet certain requirements.
For more information, see How Much Can Be
Contributed on Your Behalf? in Publication 590,
chapter 3.
13:46 - 5-APR-2006
Standard mileage rates. For tax years begin-
ning in 2006, the standard mileage rate for the
cost of operating your car is:
• 441/2 cents a mile for all business miles
driven,
• 18 cents a mile for the use of your car for
medical reasons,
• 18 cents a mile for the use of your car for
a deductible move,
• 32 cents a mile for the use of your car to
provide relief related to Hurricane Katrina,
and
• 14 cents a mile for the use of your car for
charitable reasons not related to Hurricane
Katrina.
Alternative motor vehicles and refueling
property. You may be able to take a credit if
you place an energy efficient motor vehicle or
alternative fuel vehicle refueling property in
service in 2006. You can no longer take a de-
duction for clean-fuel vehicles or refueling prop-
erty. For details, see Form 8910 (Form 8911 for
alternative fuel vehicle refueling property).
Clean renewable energy bond credit. You
may be able to take a credit based on the face
amount of any clean renewable energy bond
you hold during 2006. The amount of any credit
claimed must be included as interest income.
For details, see Form 8912.
Nonconventional source fuel credit. You
may be able to claim the nonconventional
source fuel credit for facilities producing coke or
coke gas. Also, the nonconventional source fuel
credit is now a general business credit subject to
the general business credit tax liability limits. In
general, any 2006 unused credit can be carried
forward 20 years. See Form 8907 for details.
Qualified contributions expired. You can no
longer elect to treat gifts by cash or check as
qualified contributions on Schedule A. Qualified
contributions for which you made this election
were not subject to the 50% of adjusted gross
income limit or the overall limit on itemized de-
ductions.
Residential Energy Credits
If you make energy saving improvements to
your home in 2006, you may be able to take two
new credits, the nonbusiness energy property
credit and the residential energy efficient prop-
erty credit. For credit purposes, costs are
treated as being paid when the original installa-
tion of the item is completed, or in the case of
costs connected with the construction or recon-
struction of a building, when your original use of
the constructed or reconstructed building be-
gins. If less than 80% of the use of an item is for
nonbusiness purposes, only that portion of the
expenses that are allocable to the nonbusiness
use can be used to determine the credit.
A home includes a house, houseboat, mobile
home, cooperative apartment, condominium,
and certain manufactured homes. For factors
used in determining if a home is your main
home, see Publication 523. You must reduce
the basis of your home by the amount of credit
allowed.
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If you are a member of a qualified
TIP condominium management associa-
tion for a condominium that you own
or a tenant-stockholder in a cooperative housing
corporation, you are treated as having paid your
proportionate share of any expenses of such
association or corporation. Credits must be allo-
cated based on the ratio of individual qualified
costs to total qualified costs in the case of joint
occupancy.
Nonbusiness energy property credit. You
may be able to take a credit equal to (a) 10% of
the amount paid in 2006 for qualified energy
efficiency improvements installed during 2006,
plus (b) any residential energy property costs
paid in 2006. However, this credit is limited as
follows.
• A total accumulated credit limit of $500 for
all tax years.
• A maximum accumulated credit limit of
$200 for windows for all tax years.
• A maximum credit for residential energy
property costs of $50 for any advanced
main air circulating fan; $150 for any quali-
fied natural gas, propane, or oil furnace or
hot water boiler; and $300 for any item of
energy efficient building property.
Qualified energy efficiency improve-
ments. Qualified energy efficiency improve-
ments are the following items installed on or in
your main home located in the United States if
such items are new and can be expected to
remain in use for at least 5 years.
• Any insulation material or system that is
specifically or primarily designed to reduce
the heat loss or gain of a home when
installed in or on such home.
• Exterior windows (including skylights).
• Exterior doors.
• Any metal roof installed on a home, but
only if such roof has appropriate pig-
mented coatings specifically and primarily
designed to reduce the heat gain of such
home.
To qualify for the credit, qualified en-
! ergy efficiency improvements must
meet certain energy efficiency re-
CAUTION
quirements.
Residential energy property costs. Resi-
dential energy property costs are costs of new
qualified energy property that is installed on or in
connection with your main home located in the
United States. This includes labor costs properly
allocable to the onsite preparation, assembly, or
original installation of the property. Qualified en-
ergy property is any of the following.
• Certain electric heat pump water heaters;
electric heat pumps; geothermal heat
pumps; central air conditioners; and natu-
ral gas, propane, or oil water heaters.
• Qualified natural gas, propane, or oil fur-
nace or hot water boilers.
• Certain advanced main air circulating fans
used in a natural gas, propane, or oil fur-
nace.
To qualify for the credit, qualified en-
! ergy property must meet certain per-
formance and quality standards.
CAUTION
Residential energy efficient property credit.
You may be able to take a credit of 30% of your
costs of qualified photovoltaic property, solar
water heating property, and fuel cell property.
This includes labor costs properly allocable to
the onsite preparation, assembly, or original in-
stallation of the property and for piping or wiring
to interconnect such property to the home. This
credit is limited to:
• $2,000 for qualified photovoltaic property
costs,
• $2,000 for qualified solar water heating
property costs, and
• $500 for each half kilowatt of capacity of
qualified fuel cell property for which quali-
fied fuel cell property costs are paid.
Costs allocable to a swimming pool,
! hot tub, or any other energy storage
CAUTION medium that has a function other than
the function of such storage do not qualify for the
residential energy efficiency credit.
Qualified photovoltaic property costs.
Qualified photovoltaic property costs are costs
for property that uses solar energy to generate
electricity for use in a home located in the United
States and used by you as a home. This in-
cludes costs relating to a solar panel or other
property installed as a roof or a portion of a roof.
Qualified solar water heating property
costs. Qualified solar water heating property
costs are costs for property to heat water for use
in a home located in the United States and used
by you as a home if at least half of the energy
used by such property for such purpose is de-
rived from the sun. This includes costs relating
to a solar panel or other property installed as a
roof or a portion of a roof. To qualify for the
credit, the property must be certified for perform-
ance by the nonprofit Solar Rating Certification
Corporation or a comparable entity endorsed by
the government of the state in which such prop-
erty is installed.
Qualified fuel cell property costs. Quali-
fied fuel cell property costs are costs for qualified
fuel cell property installed on or in connection
with your main home located in the United
13:46 - 5-APR-2006
States. Qualified fuel cell property is an inte-
grated system comprised of a fuel cell stack
assembly and associated balance of plant com-
ponents that converts a fuel into electricity using
electrochemical means. To qualify for the credit,
the fuel cell property must have a nameplate
capacity of at least one-half kilowatt of electricity
using an electrochemical process and an
electricity-only generation efficiency greater
than 30%.
Pending legislation may eliminate one
!
CAUTION
or more of the following changes.
Certain credits no longer allowed against al-
ternative minimum tax (AMT). The credit for
child and dependent care expenses, credit for
the elderly or the disabled, education credits,
mortgage interest credit, and carryforwards of
the District of Columbia first-time homebuyer
credit are no longer allowed against AMT and a
new tax liability limit applies. For most people,
this limit is your regular tax minus any tentative
minimum tax.
AMT exemption amount decreased. The
AMT exemption amount will decrease to
$33,750 ($45,000 if married filing jointly or a
qualifying widow(er); $22,500 if married filing
separately).
Expired tax benefits. The following tax bene-
fits have expired and will not apply for 2006.
• Deduction from adjusted gross income for
educator expenses.
• Tuition and fees deduction.
• Deduction for state and local general sales
taxes.
• District of Columbia first-time homebuyer
credit (for homes purchased after 2005).
Reminders
Social security (FICA) tax. Generally, each
employer for whom you work during the tax year
must withhold social security tax up to the an-
nual limit.
Photographs of missing children. The Inter-
nal Revenue Service is a proud partner with the
National Center for Missing and Exploited Chil-
dren. Photographs of missing children selected
by the Center may appear in this publication on
pages that would otherwise be blank. You can
help bring these children home by looking at the
photographs and calling 1-800-THE-LOST
(1-800-843-5678) if you recognize a child.
Page 3
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1.
Tax Withholding
for 2006
Introduction
This chapter discusses income tax withholding
on:
• Salaries and wages,
• Tips,
• Taxable fringe benefits,
• Sick pay,
• Pensions and annuities,
• Gambling winnings,
• Unemployment compensation, and
• Federal payments, such as social security.
This chapter explains in detail the rules for with-
holding tax from each of these types of income.
The discussion of salaries and wages includes
an explanation of how to complete a Form W-4.
This chapter also covers backup withholding
on interest, dividends, and other payments.
Useful Items
You may want to see:
Publication
❏ 919 How Do I Adjust My Tax
Withholding?
Form (and Instructions)
❏ W-4 Employee’s Withholding Allowance
Certificate
❏ W-4P Withholding Certificate for Pension
or Annuity Payments
❏ W-4S Request for Federal Income Tax
Withholding From Sick Pay
❏ W-4V Voluntary Withholding Request
See chapter 5 of this publication for informa-
tion about getting these publications and forms.
Salaries and Wages
Income tax is withheld from the pay of most
employees. Your pay includes your regular pay,
bonuses, commissions, and vacation al-
lowances. It also includes reimbursements and
other expense allowances paid under a nonac-
countable plan. See Supplemental Wages,
later, for definitions of accountable and nonac-
countable plans.
If your income is low enough that you will not
have to pay income tax for the year, you may be
exempt from withholding. This is explained
under Exemption From Withholding, later.
Page 4 Chapter 1 Tax Withholding for 2006
Military retirees. Military retirement pay is
treated in the same manner as regular pay for
income tax withholding purposes, even though it
is treated as a pension or annuity for other tax
purposes.
Household workers. If you are a household
worker, you can ask your employer to withhold
income tax from your pay. A household worker is
an employee who performs household work in a
private home, local college club, or local frater-
nity or sorority chapter.
Tax is withheld only if you want it withheld
and your employer agrees to withhold it. If you
do not have enough income tax withheld, you
may have to pay estimated tax, as discussed in
chapter 2.
Farmworkers. Income tax is generally with-
held from your cash wages for work on a farm
unless your employer both:
• Pays you cash wages of less than $150
during the year, and
• Has expenditures for agricultural labor to-
taling less than $2,500 during the year.
You can ask your employer to withhold in-
come tax from noncash wages and other wages
not subject to withholding. If your employer does
not agree to withhold tax, or if not enough is
withheld, you may have to pay estimated tax, as
discussed in chapter 2.
Determining Amount of Tax
Withheld Using Form W-4
The amount of income tax your employer with-
holds from your regular pay depends on two
things.
• The amount you earn.
• The information you give your employer
on Form W-4.
Form W-4 includes three types of information
that your employer will use to figure your with-
holding.
• Whether to withhold at the single rate or at
the lower married rate.
• How many withholding allowances you
claim (each allowance reduces the
amount withheld).
• Whether you want an additional amount
withheld.
Note. You must specify a filing status and a
number of withholding allowances on Form W-4.
You cannot specify only a dollar amount of with-
holding.
New Job
When you start a new job, you must fill out a
Form W-4 and give it to your employer. Your
employer should have copies of the form. If you
need to change the information later, you must
fill out a new form.
If you work only part of the year (for example,
you start working after the beginning of the
year), too much tax may be withheld. You may
be able to avoid overwithholding if your em-
13:46 - 5-APR-2006
ployer agrees to use the part-year method, ex-
plained later.
Changing Your Withholding
Events during the year may change your marital
status or the exemptions, adjustments, deduc-
tions, or credits you expect to claim on your
return. When this happens, you may need to
give your employer a new Form W-4 to change
your withholding status or number of al-
lowances.
If the event changes your withholding status
or the number of allowances you are claiming,
you must give your employer a new Form W-4
within 10 days after either of the following.
• Your divorce, if you have been claiming
married status.
• Any event that decreases the number of
withholding allowances you can claim.
Events that will decrease the number of with-
holding allowances you can claim include the
following.
• You have been claiming an allowance for
your spouse, but you get divorced or your
spouse begins claiming his or her own al-
lowance on a separate Form W-4.
• You have been claiming an allowance for
a dependent (qualifying relative), but you
no longer expect to provide more than half
the dependent’s support for the year.
• You have been claiming an allowance for
your qualifying child, but you now find that
he or she will provide more than half of his
or her own support during the year.
• You have been claiming allowances for
your expected deductions, but you now
find that they will be less than you ex-
pected.
Generally, you can submit a new Form W-4
whenever you wish to change the number of
your withholding allowances for any other rea-
son.
If you change the number of your withholding
allowances, you can request that your employer
withhold using the cumulative wage method,
explained later.
Changing your withholding for 2007. If
events in 2006 will decrease the number of your
withholding allowances for 2007, you must give
your employer a new Form W-4 by December 1,
2006. If an event occurs in December 2006,
submit a new Form W-4 within 10 days. Events
that will decrease the number of your al-
lowances include the following.
• You claimed allowances for 2006 based
on child care expenses, moving expenses,
or large medical expenses, but you will not
have these expenses in 2007.
• You have been claiming an allowance for
your spouse, but he or she died in 2006.
Note. Because you can still file a joint return
for 2006, your spouse’s death will not affect the
number of your withholding allowances until
2007. You will also have to change from married
to single status for 2007, unless you can file as a
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qualifying widow or widower because you have
a dependent child, or you remarry.
You must file a new Form W-4 showing sin-
gle status by December 1 of the last year you
are eligible to file as qualifying widow or wid-
ower.
Checking Your Withholding
After you have given your employer a Form W-4,
you can check to see whether the amount of tax
withheld from your pay is too little or too much.
See Publication 919 under Getting the Right
Amount of Tax Withheld, later. If too much or too
little tax is being withheld, you should give your
employer a new Form W-4 to change your with-
holding.
Note. You cannot give your employer a pay-
ment to cover federal income tax withholding on
salaries and wages for past pay periods or a
payment for estimated tax.
Completing Form W-4
and Worksheets
When reading the following discussion, you may
find it helpful to refer to the filled-in Form W-4 on
pages 10 and 11.
Marital Status
(Line 3 of Form W-4)
There is a lower withholding rate for people who
can check the “Married” box on line 3 of Form
W-4. Everyone else must have tax withheld at
the higher single rate. (Also, see Getting the
Right Amount of Tax Withheld, later.)
Single. You must check the “Single” box if
either of the following applies.
• You are single. If you are divorced, or sep-
arated from your spouse under a court de-
cree of separate maintenance, you are
considered single.
• You are married, but either you or your
spouse is neither a citizen nor a resident
of the United States. However, if one of
you is a citizen or a resident, you can
choose to have the other treated as a resi-
dent. You can then file a joint return and
claim married status on your Form W-4.
See Nonresident Spouse Treated as a
Resident in chapter 1 of Publication 519,
U.S. Tax Guide for Aliens, for more infor-
mation.
Married. You can check the “Married” box if
either of the following applies.
• You are married and neither you nor your
spouse is a nonresident alien. You are
considered married for the whole year
even if your spouse died during the year.
• You expect to be able to file your return as
a qualifying widow or widower. You usu-
ally can use this filing status if your spouse
died within the previous 2 years and you
provide more than half the cost of keeping
up a home that was the main home for
you and your dependent child for the en-
tire year. However, you must file a new
Form W-4 showing your filing status as
single by December 1 of the last year you
are eligible to file as a qualifying widow or
widower. For more information, see Quali-
fying Widow(er) With Dependent Child
under Filing Status in Publication 501, Ex-
emptions, Standard Deduction, and Filing
Information.
Married, but withhold at higher single rate.
Some married people find that they do not have
enough tax withheld at the married rate. This
can happen, for example, when both spouses
work. To avoid this, you can check the “Married,
but withhold at higher Single rate” box (even if
you qualify for the married rate). Also, you may
find that more tax is withheld if you fill out the
Two-Earner/Two-Job Worksheet, explained
later.
Withholding Allowances
(Line 5 of Form W-4)
The more allowances you claim on Form W-4,
the less income tax your employer will withhold.
You will have the most tax withheld if you claim
“0” allowances. The number of allowances you
can claim depends on the following factors.
• How many exemptions you can take on
your tax return.
• Whether you have income from more than
one job.
• What deductions, adjustments to income,
and credits you expect to have for the
year.
• Whether you will file as head of house-
hold.
If you are married, it also depends on whether
your spouse also works and claims any al-
lowances on his or her own Form W-4.
Form W-4 worksheets. Form W-4 has work-
sheets to help you figure how many withholding
allowances you can claim. The worksheets are
for your own records. Do not give them to your
employer.
Complete only one set of Form W-4 work-
sheets, no matter how many jobs you have. If
you are married and will file a joint return, com-
plete only one set of worksheets for you and
your spouse, even if you both earn wages and
must each give a Form W-4 to your employers.
Complete separate sets of worksheets only if
you and your spouse will file separate returns.
If you are not exempt from withholding (see
Exemption From Withholding, later), complete
the Personal Allowances Worksheet on page 1
of the form. You should also use the worksheets
on page 2 of the form to adjust the number of
your withholding allowances for itemized deduc-
tions and adjustments to income, and for
two-earner or two-job situations. If you want to
adjust the number of your withholding al-
lowances for certain tax credits, use the Deduc-
tions and Adjustments Worksheet on page 2 of
Form W-4, even if you do not have any deduc-
tions or adjustments.
Complete all worksheets that apply to your
situation. The worksheets will help you figure the
maximum number of withholding allowances
you are entitled to claim so that the amount of
Chapter 1
13:46 - 5-APR-2006
income tax withheld from your wages will match,
as closely as possible, the amount of income tax
you will owe at the end of the year.
Two jobs. If you have income from two jobs
at the same time, complete only one set of Form
W-4 worksheets. Then split your allowances be-
tween the Forms W-4 for each job. You cannot
claim the same allowances with more than one
employer at the same time. You can claim all
your allowances with one employer and none
with the other, or divide them any other way.
Married individuals. If both you and your
spouse are employed and expect to file a joint
return, figure your withholding allowances using
your combined income, adjustments, deduc-
tions, exemptions, and credits. Use only one set
of worksheets. You can divide your total al-
lowances any way, but you cannot claim an
allowance that your spouse also claims.
If you and your spouse expect to file sepa-
rate returns, figure your allowances using sepa-
rate worksheets based on your own individual
income, adjustments, deductions, exemptions,
and credits.
Alternative method of figuring withholding
allowances. You do not have to use the Form
W-4 worksheets if you use a more accurate
method of figuring the number of withholding
allowances.
The method you use must be based on with-
holding schedules, the tax rate schedules, and
the 2006 Estimated Tax Worksheet in chapter 2.
It must take into account only the items of in-
come, adjustments to income, deductions, and
tax credits that are taken into account on Form
W-4.
You can use the number of withholding al-
lowances determined under an alternative
method rather than the number determined us-
ing the Form W-4 worksheets. You must still
give your employer a Form W-4 claiming your
withholding allowances.
Employees who are not citizens or residents.
If you are neither a citizen nor a resident of the
United States, you usually can claim only one
withholding allowance. However, this rule does
not apply if you are a resident of Canada or
Mexico, or if you are a U.S. national. It also does
not apply if your spouse is a U.S. citizen or
resident and you have chosen to be treated as a
resident of the United States. Special rules ap-
ply to residents of Korea and India. For more
information, see Withholding From Compensa-
tion in chapter 8 of Publication 519.
Personal Allowances Worksheet
Use the Personal Allowances Worksheet on
page 1 of Form W-4 to figure your withholding
allowances for all of the following that apply.
• Exemptions.
• Only one job.
• Head of household status.
• Child and dependent care credit.
• Child tax credit.
Exemptions (worksheet lines A, C, and D).
You can claim one withholding allowance for
Tax Withholding for 2006 Page 5
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each exemption you expect to claim on your tax • Your wages from a second job or your sister, or a descendant of any of them (for
return. spouse’s wages (or the total of both) are example, your grandchild),
$1,000 or less.
Self. You can claim an allowance for your • Who was under age 17 at the end of 2006,
exemption on line A unless another person can If you qualify for this allowance, enter “1” on line
B of the worksheet.
• Who did not provide over half of his or her
claim an exemption for you on his or her tax
own support for 2006,
return. If another person is entitled to claim an
exemption for you, you cannot claim an allow- Head of household (worksheet line E). You • Who lived with you for more than half of
ance for your exemption even if the other person can file as head of household if you are unmar- 2006, and
ried and pay more than half the cost of keeping
will not claim your exemption or the exemption
up a home that was the main home for all year of
• Who was a U.S. citizen, U.S. national, or a
will be reduced. resident of the United States.
your parent whom you can claim as a dependent
Spouse. You can claim an allowance for or that you lived in for more than half the year
your spouse’s exemption on line C unless your For more information about the child tax
with your qualifying child or any other person
spouse is claiming his or her own exemption or credit, see the instructions in your Form 1040 or
you can claim as a dependent. For more infor-
another person can claim an exemption for your Form 1040A tax package.
mation, see Publication 501.
spouse. Do not claim this allowance if you and If you expect to file as head of household on Instead of using line G, you can choose to
your spouse expect to file separate returns. your 2006 tax return, enter “1” on line E of the take the credit into account on line 5 of the
worksheet. Deductions and Adjustments Worksheet, as ex-
Dependents. You can claim one allowance
plained later under Tax credits.
on line D for each exemption you will claim for a
dependent on your tax return. Child and dependent care credit (worksheet
line F). Enter “1” on line F if you expect to Total personal allowances (worksheet line
Reduction of personal allowances. claim a credit for at least $1,500 of qualifying H). Add lines A through G and enter the total
For 2006, your deduction for personal child or dependent care expenses on your 2006 on line H. If you do not use either of the work-
exemptions on your tax return is re- return. Generally, qualifying expenses are those sheets on the back of Form W-4, enter the num-
duced if your adjusted gross income (AGI) is you pay for the care of your qualifying child who ber from line H on line 5 of Form W-4.
over the AGI shown below for your filing status. is under age 13 or for your spouse or dependent
who is not able to care for himself or herself so
Single . . . . . . . . . . . . . . . . . . . . . $150,500 that you can work or look for work. For more Deductions and
Married filing jointly or qualifying information, get Publication 503. Adjustments Worksheet
widow(er) . . . . . . . . . . . . . . . . . . $225,750 Instead of using line F, you can choose to
Married filing separately . . . . . . . . . . $112,875 Use this worksheet only if you plan to itemize
take the credit into account on line 5 of the
Head of household . . . . . . . . . . . . . $188,150 your deductions, claim certain credits, or claim
Deductions and Adjustments Worksheet, as ex- adjustments to your income and you want to
If you expect your AGI to be more than that plained later under Tax credits. reduce your withholding.
amount, use Worksheet 1-1 to figure your re-
Child tax credit (worksheet line G). If your Use the amount of each item you can rea-
duced number of personal allowances on lines
total income will be less than $55,000 ($82,000 if sonably expect to show on your return. How-
A, C, and D of the Personal Allowances Work-
married), enter “2” on line G for each eligible ever, do not use more than:
sheet.
child.
1. The amount shown for that item on your
Only one job (worksheet line B). You can If your total income will be between $55,000
2005 return (or your 2004 return if you
claim an additional withholding allowance if any and $84,000 ($82,000 and $119,000 if married),
have not yet filed your 2005 return), plus
of the following apply. enter “1” on line G for each eligible child plus “1”
additional if you have four or more eligible chil- 2. Any additional amount related to a transac-
• You are single, and you have only one job dren. tion or occurrence (such as the signing of
at a time. An eligible child is any child: an agreement or the sale of property) that
you can prove has happened or will hap-
• You are married, you have only one job at • Who is your son, daughter, stepchild, fos- pen during 2005 or 2006.
a time, and your spouse does not work. ter child, brother, sister, stepbrother, step-
Do not include any amount shown on your last
Worksheet 1-1. Personal Allowances Worksheet (Form W-4) tax return that has been disallowed by the IRS.
Reduction of Personal Allowances
Example. On June 30, 2005, you bought
your first home. On your 2005 tax return, you
1. Enter your expected AGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. claimed itemized deductions of $6,600, the total
mortgage interest and real estate tax you paid
2. Enter: during the 6 months you owned your home.
$150,500 if single Based on your mortgage payment schedule and
$225,750 if married filing jointly or qualifying widow(er) your real estate tax assessment, you can rea-
$112,875 if married filing separately sonably expect to claim deductions of $13,200
$188,150 if head of household . . . . . . . . . . . . . . . . . . . . . . 2. for those items on your 2006 return. You can use
3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. $13,200 to figure the number of your withholding
allowances for itemized deductions.
4. Divide line 3 by $125,000 ($62,500 if married filing separately).
Enter the result as a decimal . . . . . . . . . . . . . . . . . . . . . . . . . 4. . Not itemizing deductions. If you expect to
5. Enter the total number of allowances on lines A, C, and D of the claim the standard deduction on your tax return,
Personal Allowances Worksheet without regard to the phaseout skip lines 1 and 2, and enter “0” on line 3 of the
rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. worksheet.

6. Multiply line 4 by line 5. If the result is not a whole number, Itemized deductions (worksheet line 1).
increase it to the next higher whole number . . . . . . . . . . . . . . . . 6. You can take the following deductions into ac-
7. Divide line 6 by 1.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. count when figuring additional withholding al-
lowances for 2006. You normally claim these
8. Subtract line 7 from line 5. The total of the numbers you enter on deductions on Schedule A of Form 1040.
lines A, C, and D of the Personal Allowances Worksheet cannot be
more than this amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. 1. Medical and dental expenses that are
more than 7.5% of your 2006 adjusted
gross income (defined later).

Page 6 Chapter 1 Tax Withholding for 2006

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2. State and local income taxes and property b. Safe deposit box rental, • Deduction for contributions to self-em-
taxes. ployed SEP, and qualified SIMPLE plans.
c. Tax counsel and assistance, and
3. Deductible home mortgage interest.
d. Certain fees paid to an IRA trustee or
• Self-employed health insurance deduction.
4. Investment interest up to net investment custodian. • Penalty on early withdrawal of savings.
income.
Adjusted gross income for purposes of the
• Alimony paid.
5. Charitable contributions. worksheet is your estimated total income for • IRA deduction.
2006 minus any estimated adjustments to in-
6. Casualty and theft losses that are more
come (discussed later) that you include on line 4
• Student loan interest deduction.
than 10% of your adjusted gross income.
of the worksheet. • Jury duty pay given to your employer.
7. Fully deductible miscellaneous itemized Enter your estimated total itemized deduc-
deductions, including: • Reforestation amortization and expenses.
tions on line 1 of the worksheet.
a. Impairment-related work expenses of
• Repayment of certain supplemental unem-
Phaseout of itemized deductions.
ployment benefits.
persons with disabilities, For 2006, your total itemized deduc-
b. Federal estate tax on income in respect
tions may be phased out (reduced) if • Attorney fees and court costs for certain
your adjusted gross income (AGI) is more than unlawful discrimination claims.
of a decedent,
$150,500 ($75,250 if married filing separately).
Enter your estimated total adjustments to in-
c. Repayment of more than $3,000 of in- If you expect your AGI to be more than that
come on line 4 of the worksheet.
come held under a claim of right that amount, use Worksheet 1-2 to figure the amount
you included in income in an earlier to enter on line 1 of the Deductions and Adjust-
Tax credits (worksheet line 5). Although you
year because at the time you thought ments Worksheet.
can take most tax credits into account when
you had an unrestricted right to it, figuring withholding allowances, the Form W-4
Adjustments to income (worksheet
d. Unrecovered investments in an annuity line 4). You can take the following adjust- worksheets use only the child and dependent
contract under which payments have ments to income into account when figuring ad- care credit (line F of the Personal Allowances
ceased because of the annuitant’s ditional withholding allowances for 2006. These Worksheet) and the child tax credit (line G). But
death, adjustments appear on page 1 of your Form you can take these credits and others into ac-
1040 or 1040A. count by adding an extra amount on line 5 of the
e. Gambling losses up to the amount of Deductions and Adjustments Worksheet.
gambling winnings reported on your re- • Net losses from Schedules C, D, E, and F If you take the child and dependent care
turn, and of Form 1040 and from Part II of Form credit into account on line 5, do not use line F of
4797, line 18b. the Personal Allowances Worksheet. If you take
f. Casualty and theft losses from
income-producing property. • Net operating loss carryovers. the child tax credit into account on line 5, do not
use line G.
8. Other miscellaneous itemized deductions
• Certain business expenses of reservists,
In addition to the child and dependent care
performing artists, and fee-based govern-
that are more than 2% of your adjusted credit and child tax credit, you can take into
ment officials.
gross income, including: account the following credits.
• Health savings account or medical savings
a. Unreimbursed employee business ex- account deduction. • Foreign tax credit, except any credit that
penses, such as educational expenses, applies to wages not subject to U.S. in-
work clothes and uniforms, union dues • Certain moving expenses. come tax withholding because they are
and fees, and the cost of work-related • Deduction for one-half of self-employment subject to income tax withholding by a for-
small tools and supplies, tax. eign country. See Publication 514, Foreign
Tax Credit for Individuals.
Worksheet 1-2. Deductions and Adjustments Worksheet • Credit for the elderly or the disabled. See
(Form W-4) —Line 1 Publication 524, Credit for the Elderly or
Phaseout of Itemized Deductions the Disabled.
• Hope credit. See Publication 970, Tax
1. Enter the estimated total of your itemized deductions . . . . . . . . . 1. Benefits for Education.
2. Enter the amount included in line 1 for medical and dental • Lifetime learning credit. See Publication
expenses, investment interest, casualty or theft losses, and 970, Tax Benefits for Education.
gambling losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
• Retirement savings contributions credit.
3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. See Publication 590, Individual Retirement
Note. If line 3 is zero, stop here and enter line 1 of this worksheet Arrangements.
on line 1 of the Deductions and Adjustments Worksheet.
• Adoption credit. See the instructions for
4. Multiply line 3 by 80% (.80) . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Form 8839, Qualified Adoption Expenses.
5. Enter your expected AGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. • Mortgage interest credit. See Mortgage In-
terest Credit in Publication 530, Tax Infor-
6. Enter $150,500 ($75,250 if married filing separately) . . . . . . . . . . 6.
mation for First-Time Homeowners.
7. Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
• Credit for prior year minimum tax if you
8. Multiply line 7 by 3% (.03) . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. paid alternative minimum tax in an earlier
year. See the instructions for Form 8801,
9. Enter the smaller of line 4 or line 8 . . . . . . . . . . . . . . . . . . . . . . 9.
Credit for Prior Year Minimum Tax — Indi-
10. Divide line 9 by 3.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. viduals, Estates, and Trusts.
11. Subtract line 10 from line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. • Qualified electric vehicle credit. See the
instructions for Form 8834, Qualified Elec-
12. Subtract line 11 from line 1. Enter the result here and on line 1
tric Vehicle Credit.
of the Deductions and Adjustments Worksheet . . . . . . . . . . . . . 12.
• General business credit. See Form 3800,
General Business Credit.

Chapter 1 Tax Withholding for 2006 Page 7

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• Earned income credit, unless you re- Table 1-1. Deductions and Illustrated Example —Form W-4
quested advance payment of the credit. Adjustments
See Publication 596, Earned Income Worksheet (Form W-4) Joyce Green works in a bookstore and expects
Credit. —Line 5 to earn about $13,300. Her husband, John,
works full time at the Acme Corporation, where
• Alternative motor vehicle credit. See Form his expected pay is $48,500. They file a joint
8910, Alternative Motor Vehicle Credit. A. Married Filing Jointly or income tax return and claim exemptions for their
Qualifying Widow(er)
• Alternative fuel vehicle refueling property two children. Because they file jointly, they use
credit. See Form 8911, Alternative Fuel If combined income Multiply only one set of Form W-4 worksheets to figure
Vehicle Refueling Property Credit. from all sources is: credits by: the number of withholding allowances. The
Greens’ worksheets and John’s W-4 are shown
• Clean renewable energy bond credit. See $0 – 36,000 . . . . . . . . . . . . . . . . . . . 10.0 in Figure 1-A, beginning on page 10.
Form 8912, Clean Renewable Energy $36,001 – 82,000 . . . . . . . . . . . . . . . 6.7
Bond Credit and Gulf Bond Credit. $82,001 – 150,000 . . . . . . . . . . . . . . 4.0 Personal Allowances Worksheet. On this
• Qualified zone academy bond credit. See $150,001 – 220,000 . . . . . . . . . . . . . 3.6 worksheet, John and Joyce claim allowances for
Form 8860, Qualified Zone Academy $220,001 – 360,000 . . . . . . . . . . . . . 3.0 themselves and their children by entering “1” on
Bond Credit. $360,001 and over . . . . . . . . . . . . . . . 2.8 line A, “1” on line C, and “2” on line D. Because
both John and Joyce will receive wages of more
• Health coverage tax credit. See Form B. Single than $1,000, they are not entitled to the addi-
8885, Health Coverage Tax Credit. tional withholding allowance on line B. The
If combined income Multiply
• Residential energy credits. See Publica- from all sources is: credits by:
Greens expect to have child and dependent
tion 553, Highlights of 2005 Tax Changes. care expenses of $2,400. They enter “1” on line
$0 – 16,000 . . . . . . . . . . . . . . . . . . . 10.0 F of the worksheet. Because they are married,
To figure the amount to add on line 5 for tax $16,001 – 39,000 . . . . . . . . . . . . . . . 6.7 their total income will be less than $82,000 and
credits, multiply your estimated total credits by they have two eligible children, they enter “4” on
$39,001 – 85,000 . . . . . . . . . . . . . . . 4.0
the appropriate number from Table 1-1. line G.
$85,001 – 170,000 . . . . . . . . . . . . . . 3.6
They enter their total personal allowances,
$170,001 – 350,000 . . . . . . . . . . . . . 3.0
Example. You are married and expect to file “9,” on line H.
$350,001 and over . . . . . . . . . . . . . . . 2.8
a joint return for 2006. Your combined estimated Deductions and Adjustments Worksheet.
wages are $68,000. Your estimated tax credits C. Head of Household Because they plan to itemize deductions and
include a child and dependent care credit of claim adjustments to income, the Greens use
$960 and a mortgage interest credit of $1,700. If combined income Multiply
from all sources is: credits by: this worksheet to see whether they are entitled
In Table 1-1, section A, the number for your to additional allowances.
combined estimated wages ($36,001 – $0 – 25,000 . . . . . . . . . . . . . . . . . . . 10.0 The Greens’ estimated itemized deductions
$82,000) is 6.7. Multiply your total estimated tax $25,001 – 55,000 . . . . . . . . . . . . . . . 6.7 total $11,300, which they enter on line 1 of the
credits of $2,660 by 6.7. Add the result, $17,822, $55,001 – 125,000 . . . . . . . . . . . . . . 4.0 worksheet. Because they will file a joint return,
to the amount you would otherwise show on line $125,001 – 190,000 . . . . . . . . . . . . . 3.6 they enter $10,300 on line 2. They subtract
5 of the Deductions and Adjustments Worksheet $190,001 – 355,000 . . . . . . . . . . . . . 3.0 $10,300 from $11,300 and enter the result,
and enter the total on line 5. Because you $1,000, on line 3.
$355,001 and over . . . . . . . . . . . . . . . 2.8
choose to account for your child and dependent The Greens expect to have an adjustment to
care credit this way, do not make an entry on line income of $3,000 for their deductible IRA contri-
D. Married Filing Separately
F of the Personal Allowances Worksheet. butions. They do not expect to have any other
If combined income Multiply adjustments to income. They enter $3,000 on
Nonwage income (worksheet line 6). Enter from all sources is: credits by: line 4.
on line 6 your estimated total nonwage income The Greens add line 3 and line 4 and enter
(other than tax-exempt income). Nonwage in- $0 – 18,000 . . . . . . . . . . . . . . . . . . . 10.0
$18,001 – 41,000 . . . . . . . . . . . . . . . 6.7 the total, $4,000, on line 5.
come includes interest, dividends, net rental in- Joyce and John expect to receive $600 in
come, unemployment compensation, alimony, $41,001 – 75,000 . . . . . . . . . . . . . . . 4.0
$75,001 – 110,000 . . . . . . . . . . . . . . 3.6 interest and dividend income during the year.
gambling winnings, prizes and awards, hobby They enter $600 on line 6 and subtract line 6
income, capital gains, royalties, and partnership $110,001 – 180,000 . . . . . . . . . . . . . 3.0
from line 5. They enter the result, $3,400, on line
income. $180,001 and over . . . . . . . . . . . . . . . 2.8
7. They divide line 7 by $3,300, and drop the
If line 6 is more than line 5, you may not have fraction to determine one additional allowance.
enough income tax withheld from your wages. They enter “1” on line 8.
Reducing your allowances (worksheet lines
See Getting the Right Amount of Tax Withheld, The Greens enter “9” (the number from line H
1 – 3). On line 1 of the worksheet, enter the
later. of the Personal Allowances Worksheet) on line 9
number from line H of the Personal Allowances
Worksheet (or line 10 of the Deductions and and add it to line 8. They enter “10” on line 10.
Net deductions and adjustments (worksheet
Adjustments Worksheet, if used). Using Table 1
line 7). If line 7 is less than $3,300, enter “0” Two-Earner/Two-Job Worksheet. The
on Form W-4, find the number listed beside the
on line 8. If line 7 is $3,300 or more, divide it by Greens use this worksheet because they both
amount of your estimated wages for the year
$3,300, drop any fraction, and enter the result on work and together earn over $25,000. They
from your lowest paying job (or if lower, your
line 8. enter “10” (the number from line 10 of the De-
spouse’s job). Enter that number on line 2.
Subtract line 2 from line 1 and enter the ductions and Adjustments Worksheet) on line 1.
result (but not less than zero) on line 3 and on Next, they use Table 1 on Form W-4 to find
Two-Earner/Two-Job Worksheet the number to enter on line 2 of the worksheet.
Form W-4, line 5. If line 1 is more than or equal
to line 2, do not use the rest of the worksheet. Because they will file a joint return, their ex-
You should complete this worksheet if you have
If line 1 is less than line 2, you should com- pected wages from the highest paying job are
more than one job or are married and you and
plete lines 4 through 9 of the worksheet to figure more than $42,000, and their expected wages
your spouse both work and the combined earn-
the additional withholding needed to avoid un- from their lowest paying job are $13,300, they
ings from all jobs are more than $35,000
derwithholding. enter “2” on line 2. They subtract line 2 from line
($25,000 if married).
1 and enter “8” on line 3 of the worksheet and on
If you use this worksheet and your Other amounts owed. If you expect to owe Form W-4, line 5.
!
CAUTION
earnings are more than $130,000
($180,000 if you are married), see
amounts other than income tax, such as
self-employment tax, include them on line 8. The
John and Joyce Green can take a total of 8
withholding allowances between them. They de-
Publication 919 to check that you are having total is the additional withholding needed for the cide that John will take all 8 allowances on his
enough tax withheld. year. Form W-4. Joyce, therefore, cannot claim any

Page 8 Chapter 1 Tax Withholding for 2006

Page 9 of 67 of Publication 505
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allowances on hers. She will enter “0” on line 5
of the Form W-4 she gives to her employer.
Getting the Right Amount
of Tax Withheld
In most situations, the tax withheld from your
pay will be close to the tax you figure on your
return if you follow these two rules.
• You accurately complete all the Form W-4
worksheets that apply to you.
• You give your employer a new Form W-4
when changes occur.
But because the worksheets and withholding
methods do not account for all possible situa-
tions, you may not be getting the right amount
withheld. This is most likely to happen in the
following situations.
• You are married and both you and your
spouse work.
• You have more than one job at a time.
• You have nonwage income, such as inter-
est, dividends, alimony, unemployment
compensation, or self-employment in-
come.
• You will owe additional amounts with your
return, such as self-employment tax.
• Your withholding is based on obsolete
Form W-4 information for a substantial
part of the year.
• Your earnings are more than $130,000 if
you are single or $180,000 if you are mar-
ried.
• You work only part of the year.
• You change the number of your withhold-
ing allowances during the year.
Part-Year Method
If you work only part of the year and your em-
ployer agrees to use the part-year withholding
method, less tax will be withheld from each
wage payment than would be withheld if you
worked all year. To be eligible for the part-year
method, you must meet both of the following
requirements.
• You must use the calendar year (the 12
months from January 1 through December
31) as your tax year. You cannot use a
fiscal year.
• You must not expect to be employed for
more than 245 days during the year. To
figure this limit, count all calendar days
that you are employed (including week-
ends, vacations, and sick days) beginning
the first day you are on the job for pay and
ending your last day of work. If you are
temporarily laid off for 30 days or less,
count those days too. If you are laid off for
more than 30 days, do not count those
days. You will not meet this requirement if
you begin working before May 1 and ex-
pect to work for the rest of the year.
How to apply for the part-year method. You
must ask in writing that your employer use this
method. The request must state all three of the
following.
• The date of your last day of work for any
prior employer during the current calendar
year.
• That you do not expect to be employed
more than 245 days during the current cal-
endar year.
• That you use the calendar year as your
tax year.
Cumulative wage method. If you change the
number of your withholding allowances during
the year, too much or too little tax may have
been withheld for the period before you made
the change. You may be able to compensate for
this if your employer agrees to use the cumula-
tive wage withholding method for the rest of the
year. You must ask in writing that your employer
use this method.
To be eligible, you must have been paid for
the same kind of payroll period (weekly, bi-
weekly, etc.) since the beginning of the year.
Publication 919
To make sure you are getting the right amount of
tax withheld, get Publication 919. It will help you
compare the total tax to be withheld during the
year with the tax you can expect to figure on
your return. It also will help you determine how
much, if any, additional withholding is needed
each payday to avoid owing tax when you file
your return. If you do not have enough tax with-
held, you may have to pay estimated tax. See
chapter 2 for information about estimated tax.
Rules Your Employer
Must Follow
It may be helpful for you to know some of the
withholding rules your employer must follow.
These rules can affect how to fill out your Form
W-4 and how to handle problems that may arise.
New Form W-4. When you start a new job,
your employer should give you a Form W-4 to fill
out. Your employer will use the information you
give on the form to figure your withholding begin-
ning with your first payday.
If you later fill out a new Form W-4, your
employer can put it into effect as soon as possi-
ble. The deadline for putting it into effect is the
start of the first payroll period ending 30 or more
days after you turn it in.
No Form W-4. If you do not give your em-
ployer a completed Form W-4, your employer
must withhold at the highest rate, as if you were
single and claimed no allowances.
Repaying withheld tax. If you find you are
having too much tax withheld because you did
not claim all the withholding allowances you are
entitled to, you should give your employer a new
Form W-4. Your employer cannot repay any of
the tax previously withheld.
However, if your employer has withheld
more than the correct amount of tax for the Form
W-4 you have in effect, you do not have to fill out
a new Form W-4 to have your withholding low-
ered to the correct amount. Your employer can
repay the amount that was incorrectly withheld.
Chapter 1
13:46 - 5-APR-2006
If you are not repaid, your Form W-2, Wage and
Tax Statement, will reflect the full amount actu-
ally withheld.
IRS review of your withholding. Whether
you are entitled to claim a certain number of
allowances or complete exemption from with-
holding is subject to review by the IRS. Your
employer may be required to send a copy of the
Form W-4 to the IRS. There is a penalty for
supplying false information on Form W-4. See
Penalties, later.
If the IRS determines that you cannot claim
more than a specified number of withholding
allowances or claim a complete exemption from
withholding, the IRS will issue a notice of the
maximum number of withholding allowances
permitted (commonly referred to as a “lock-in
letter”) to both you and your employer.
The IRS will provide a period of time during
which you can dispute the determination before
your employer adjusts your withholding. If you
believe that you are entitled to claim complete
exemption from withholding or claim more with-
holding allowances than the maximum number
specified by the IRS in the lock-in letter, you
must submit a new Form W-4 and a written
statement to support your claims to the IRS.
Contact information (a toll-free number and an
IRS office address) will be provided in the lock-in
letter. At the end of this period, if you have not
responded or if your response is not adequate,
your employer will be required to withhold based
on the original lock-in letter.
After the lock-in letter takes effect, your em-
ployer must withhold tax on the basis of the
maximum number of withholding allowances
specified in that letter.
If you later believe that you are entitled to
claim exempt status or more allowances than
the IRS determined, you can complete a new
Form W-4 and a written statement to support the
claims made on the Form W-4 and send them
directly to the IRS address shown on the lock-in
letter. Your employer must continue to figure
your withholding on the basis of the number of
allowances previously determined by the IRS
until the IRS advises your employer otherwise.
At any time, either before or after the lock-in
letter becomes effective, you may furnish to your
employer a new Form W-4 that does not claim
complete exemption from withholding and
claims fewer than the number of withholding
allowances specified in the lock-in letter. Your
employer must then withhold tax based on this
new Form W-4.
Exemption From Withholding
If you claim exemption from withholding, your
employer will not withhold federal income tax
from your wages. The exemption applies only to
income tax, not to social security or Medicare
tax.
You can claim exemption from withholding
for 2006 only if both the following situations
apply.
• For 2005 you had a right to a refund of all
federal income tax withheld because you
had no tax liability.
• For 2006 you expect a refund of all federal
income tax withheld because you expect
to have no tax liability.
Tax Withholding for 2006 Page 9
Page 10 of 67 of Publication 505 13:46 - 5-APR-2006

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Figure 1-A. Illustrated Example—Form W-4

Form W-4 (2006)
Purpose. Complete Form W-4 so that your
employer can withhold the correct federal income
tax from your pay. Because your tax situation may
change, you may want to refigure your withholding
each year.
Exemption from withholding. If you are exempt,
complete only lines 1, 2, 3, 4, and 7 and sign the
form to validate it. Your exemption for 2006
expires February 16, 2007. See Pub. 505, Tax
Withholding and Estimated Tax.
Note. You cannot claim exemption from withhold-
ing if (a) your income exceeds $850 and includes
more than $300 of unearned income (for example,
interest and dividends) and (b) another person can
claim you as a dependent on their tax return.
Basic instructions. If you are not exempt, complete
the Personal Allowances Worksheet below. The
worksheets on page 2 adjust your withholding
allowances based on itemized deductions, certain
credits, adjustments to income, or two-
earner/two-job situations. Complete all worksheets
that apply. However, you may claim fewer (or zero)
allowances.
Head of household. Generally, you may claim
head of household filing status on your tax return
only if you are unmarried and pay more than 50%
of the costs of keeping up a home for yourself and
your dependent(s) or other qualifying individuals.
See line E below.
Tax credits. You can take projected tax credits
into account in figuring your allowable number of
withholding allowances. Credits for child or depen-
dent care expenses and the child tax credit may
be claimed using the Personal Allowances Work-
sheet below. See Pub. 919, How Do I Adjust My
Tax Withholding, for information on converting
your other credits into withholding allowances.
Nonwage income. If you have a large amount of
nonwage income, such as interest or dividends, con-
sider making estimated tax payments using Form
1040-ES, Estimated Tax for Individuals. Otherwise,
you may owe additional tax.
Two earners/two jobs. If you have a working
spouse or more than one job, figure the total number
of allowances you are entitled to claim on all jobs
using worksheets from only one Form W-4. Your
withholding usually will be most accurate when all
allowances are claimed on the Form W-4 for the
highest paying job and zero allowances are claimed
on the others.
Nonresident alien. If you are a nonresident alien,
see the Instructions for Form 8233 before complet-
ing this Form W-4.
Check your withholding. After your Form W-4
takes effect, use Pub. 919 to see how the dollar
amount you are having withheld compares to your
projected total tax for 2006. See Pub. 919, especi-
ally if your earnings exceed $130,000 (Single) or
$180,000 (Married).
Recent name change? If your name on line 1
differs from that shown on your social security
card, call 1-800-772-1213 to initiate a name change
and obtain a social security card showing your cor-
rect name.

Personal Allowances Worksheet (Keep for your records.)

A Enter “1” for yourself if no one else can claim you as a dependent A 1

兵 其
● You are single and have only one job; or
B Enter “1” if: ● You are married, have only one job, and your spouse does not work; or B
● Your wages from a second job or your spouse’s wages (or the total of both) are $1,000 or less.
C Enter “1” for your spouse. But, you may choose to enter “-0-” if you are married and have either a working spouse or
more than one job. (Entering “-0-” may help you avoid having too little tax withheld.) C 1
D Enter number of dependents (other than your spouse or yourself) you will claim on your tax return D 2
E Enter “1” if you will file as head of household on your tax return (see conditions under Head of household above) E
F Enter “1” if you have at least $1,500 of child or dependent care expenses for which you plan to claim a credit F 1
(Note. Do not include child support payments. See Pub. 503, Child and Dependent Care Expenses, for details.)
G Child Tax Credit (including additional child tax credit):
● If your total income will be less than $55,000 ($82,000 if married), enter “2” for each eligible child.
● If your total income will be between $55,000 and $84,000 ($82,000 and $119,000 if married), enter “1” for each eligible
child plus “1” additional if you have four or more eligible children. G 4
H Add lines A through G and enter total here. (Note. This may be different from the number of exemptions you claim on your tax return.) 䊳 H 9

兵
For accuracy, ● If you plan to itemize or claim adjustments to income and want to reduce your withholding, see the Deductions
complete all and Adjustments Worksheet on page 2.
worksheets ● If you have more than one job or are married and you and your spouse both work and the combined earnings from all jobs
that apply. exceed $35,000 ($25,000 if married) see the Two-Earner/Two-Job Worksheet on page 2 to avoid having too little tax withheld.
● If neither of the above situations applies, stop here and enter the number from line H on line 5 of Form W-4 below.

Cut here and give Form W-4 to your employer. Keep the top part for your records.

Form W-4 Employee’s Withholding Allowance Certificate OMB No. 1545-0074

Department of the Treasury

Internal Revenue Service
䊳 Whether you are entitled to claim a certain number of allowances or exemption from withholding is
subject to review by the IRS. Your employer may be required to send a copy of this form to the IRS.
2006
1 Type or print your first name and middle initial. Last name 2 Your social security number
John M. Green 444 00 4444
Home address (number and street or rural route)
3 Single Married Married, but withhold at higher Single rate.
28 Fairway Note. If married, but legally separated, or spouse is a nonresident alien, check the “Single” box.
City or town, state, and ZIP code 4 If your last name differs from that shown on your social security
Anytown, State 00000 card, check here. You must call 1-800-772-1213 for a new card. 䊳

5 Total number of allowances you are claiming (from line H above or from the applicable worksheet on page 2) 5 8
6 Additional amount, if any, you want withheld from each paycheck 6 $
7 I claim exemption from withholding for 2006, and I certify that I meet both of the following conditions for exemption.
● Last year I had a right to a refund of all federal income tax withheld because I had no tax liability and
● This year I expect a refund of all federal income tax withheld because I expect to have no tax liability.
If you meet both conditions, write “Exempt” here 䊳 7
Under penalties of perjury, I declare that I have examined this certificate and to the best of my knowledge and belief, it is true, correct, and complete.
Employee’s signature
(Form is not valid
unless you sign it.) 䊳 John M. Green Date 䊳 January 4, 2006
8 Employer’s name and address (Employer: Complete lines 8 and 10 only if sending to the IRS.) 9 Office code 10 Employer identification number (EIN)
(optional)

For Privacy Act and Paperwork Reduction Act Notice, see page 2. Cat. No. 10220Q Form W-4 (2006)

Page 10 Chapter 1 Tax Withholding for 2006

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Figure 1-A. Illustrated Example—Form W-4 (Continued)

Form W-4 (2006) Page 2
Deductions and Adjustments Worksheet
Note. Use this worksheet only if you plan to itemize deductions, claim certain credits, or claim adjustments to income on your 2006 tax return.
1 Enter an estimate of your 2006 itemized deductions. These include qualifying home mortgage interest,
charitable contributions, state and local taxes, medical expenses in excess of 7.5% of your income, and
miscellaneous deductions. (For 2006, you may have to reduce your itemized deductions if your income
is over $150,500 ($75,250 if married filing separately). See Worksheet 3 in Pub. 919 for details.) 1 $ 11,300

兵 其
$10,300 if married filing jointly or qualifying widow(er)
2 Enter: $ 7,550 if head of household 2 $ 10,300
$ 5,150 if single or married filing separately
3 Subtract line 2 from line 1. If line 2 is greater than line 1, enter “-0-” 3 $ 1,000
4 Enter an estimate of your 2006 adjustments to income, including alimony, deductible IRA contributions, and student loan interest 4 $ 3,000
5 Add lines 3 and 4 and enter the total. (Include any amount for credits from Worksheet 7 in Pub. 919) 5 $ 4,000
6 Enter an estimate of your 2006 nonwage income (such as dividends or interest) 6 $ 600
7 Subtract line 6 from line 5. Enter the result, but not less than “-0-” 7 $ 3,400
8 Divide the amount on line 7 by $3,300 and enter the result here. Drop any fraction 8 1
9 Enter the number from the Personal Allowances Worksheet, line H, page 1 9 9
10 Add lines 8 and 9 and enter the total here. If you plan to use the Two-Earner/Two-Job Worksheet, also
enter this total on line 1 below. Otherwise, stop here and enter this total on Form W-4, line 5, page 1 10 10
Two-Earner/Two-Job Worksheet (See Two earners/two jobs on page 1.)
Note. Use this worksheet only if the instructions under line H on page 1 direct you here.
1 Enter the number from line H, page 1 (or from line 10 above if you used the Deductions and Adjustments Worksheet) 1 10
2 Find the number in Table 1 below that applies to the LOWEST paying job and enter it here 2 2
3 If line 1 is more than or equal to line 2, subtract line 2 from line 1. Enter the result here (if zero, enter
“-0-”) and on Form W-4, line 5, page 1. Do not use the rest of this worksheet 3 8
Note. If line 1 is less than line 2, enter “-0-” on Form W-4, line 5, page 1. Complete lines 4–9 below to calculate the additional
withholding amount necessary to avoid a year-end tax bill.
4 Enter the number from line 2 of this worksheet 4
5 Enter the number from line 1 of this worksheet 5
6 Subtract line 5 from line 4 6
7 Find the amount in Table 2 below that applies to the HIGHEST paying job and enter it here 7 $
8 Multiply line 7 by line 6 and enter the result here. This is the additional annual withholding needed 8 $
9 Divide line 8 by the number of pay periods remaining in 2006. For example, divide by 26 if you are paid
every two weeks and you complete this form in December 2005. Enter the result here and on Form W-4,
line 6, page 1. This is the additional amount to be withheld from each paycheck 9 $
Table 1: Two-Earner/Two-Job Worksheet
Married Filing Jointly All Others
If wages from HIGHEST AND, wages from LOWEST Enter on If wages from HIGHEST AND, wages from LOWEST Enter on If wages from LOWEST Enter on
paying job are— paying job are— line 2 above paying job are— paying job are— line 2 above paying job are— line 2 above
$0 - $42,000 $0 - $4,500 0 $42,001 and over 32,001 - 38,000 6 $0 - $6,000 0
4,501 - 9,000 1 38,001 - 46,000 7 6,001 - 12,000 1
9,001 - 18,000 2 46,001 - 55,000 8 12,001 - 19,000 2
18,001 and over 3 55,001 - 60,000 9 19,001 - 26,000 3
60,001 - 65,000 10 26,001 - 35,000 4
$42,001 and over $0 - $4,500 0 65,001 - 75,000 11 35,001 - 50,000 5
4,501 - 9,000 1 75,001 - 95,000 12 50,001 - 65,000 6
9,001 - 18,000 2 95,001 - 105,000 13 65,001 - 80,000 7
18,001 - 22,000 3 105,001 - 120,000 14 80,001 - 90,000 8
22,001 - 26,000 4 120,001 and over 15 90,001 - 120,000 9
26,001 - 32,000 5 120,001 and over 10
Table 2: Two-Earner/Two-Job Worksheet
Married Filing Jointly All Others
If wages from HIGHEST Enter on If wages from HIGHEST Enter on
paying job are— line 7 above paying job are— line 7 above
$0 - $60,000 $500 $0 - $30,000 $500
60,001 - 115,000 830 30,001 - 75,000 830
115,001 - 165,000 920 75,001 - 145,000 920
165,001 - 290,000 1,090 145,001 - 330,000 1,090
290,001 and over 1,160 330,001 and over 1,160
Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this the Paperwork Reduction Act unless the form displays a valid OMB control number. Books
form to carry out the Internal Revenue laws of the United States. The Internal Revenue or records relating to a form or its instructions must be retained as long as their contents
Code requires this information under sections 3402(f)(2)(A) and 6109 and their may become material in the administration of any Internal Revenue law. Generally, tax
regulations. Failure to provide a properly completed form will result in your being treated returns and return information are confidential, as required by Code section 6103.
as a single person who claims no withholding allowances; providing fraudulent
The average time and expenses required to complete and file this form will vary
information may also subject you to penalties. Routine uses of this information include
depending on individual circumstances. For estimated averages, see the instructions
giving it to the Department of Justice for civil and criminal litigation, to cities, states, and
for your income tax return.
the District of Columbia for use in administering their tax laws, and using it in the
National Directory of New Hires. We may also disclose this information to other countries If you have suggestions for making this form simpler, we would be happy to hear
under a tax treaty, to federal and state agencies to enforce federal nontax criminal laws, from you. See the instructions for your income tax return.
or to federal law enforcement and intelligence agencies to combat terrorism.
You are not required to provide the information requested on a form that is subject to

Chapter 1 Tax Withholding for 2006 Page 11

Page 12 of 67 of Publication 505 13:46 - 5-APR-2006

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Figure 1-B. Exemption From Withholding on Form W-4

Note. Do not use this chart if you are 65 or older or blind, or if you will itemize your deductions or claim exemptions for dependents or tax
credits. Instead, see the discussions in this chapter under Exemption From Withholding.

Start Here

For 2005, did you have a

right to a refund of ALL No You CANNOT claim
federal income tax withheld 䊳 exemption from
because you had NO tax withholding.
liability?

䊱
Yes Yes

Will your 2006 total income be more than the amount

shown below for your filing status?
䊲

For 2006, will Single $ 8,450

someone (such as
your parent) be able
to claim you as a
dependent?
Head of household 10,850
No Married filing separately for
䊳 BOTH 2005 and 2006 8,450
Other married status (include BOTH
spouses’ income whether filing
separately or jointly) 16,900
Qualifying widow(er) 13,600

Yes
䊲 No

Will your 2006 income No

be more than $850?

Yes
䊲 䊲 䊲

Will your 2006 income

Yes You CANNOT claim You CAN claim
include more than $300
䊳 exemption from exemption from
of unearned income
withholding. withholding.
(interest, dividends, etc.)?

䊱 䊱
No No

Will your 2006 total income be: Yes

䊳 $5,150 or less?

Use Figure 1-B, above, to help you decide
whether you can claim exemption from withhold-
ing. Do not use Figure 1-B if you:
• Are 65 or older.
• Are blind.
• Will itemize deductions on your 2006 re-
turn.
• Will claim an exemption for a dependent
on your 2006 return.
• Will claim any tax credits on your 2006
return.
These situations are discussed later.
Students. If you are a student, you are not
automatically exempt. If you work only part time
or during the summer, you may qualify for ex-
emption from withholding.
Example 1. You are a high school student
and expect to earn $2,500 from a summer job.
You do not expect to have any other income
during the year, and your parents will be able to
claim an exemption for you on their tax return.
You worked last summer and had $375 federal
income tax withheld from your pay. The entire

Page 12 Chapter 1 Tax Withholding for 2006

Page 13 of 67 of Publication 505 13:46 - 5-APR-2006

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$375 was refunded when you filed your 2005
return. Using Figure 1-B, you find that you can
claim exemption from withholding.
Example 2. The facts are the same as in
Example 1, except that you also have a savings
account and expect to have $320 interest in-
come during the year. Using Figure 1-B, you find
that you cannot claim exemption from withhold-
ing because your unearned income will be more
than $300 and your total income will be more
than $850.
You may have to file a tax return, even
!
CAUTION
if you are exempt from withholding.
See Publication 501 to see whether
you must file a return.
Age 65 or older or blind. If you are
65 or older or blind, use Worksheet
1-3 or Worksheet 1-4 to help you de-
cide whether you can claim exemption from
withholding. Do not use either worksheet if you
will itemize deductions, claim exemptions for
dependents, or claim tax credits on your 2006
return — instead, see Itemizing deductions or
claiming exemptions or credits, next.
Itemizing deductions or claiming exemp-
tions or credits. If you had no tax liability for
2005, and you will either:
• Itemize deductions,
• Claim an exemption for a dependent, or
• Claim a tax credit,
use the 2006 Estimated Tax Worksheet in Form
1040-ES (also see chapter 2), to figure your
2006 expected tax liability. You can claim ex-
emption from withholding only if your total ex-
pected tax liability (line 13c of the worksheet) is
zero.
Claiming exemption from withholding. To
claim exemption, you must give your employer a
Form W-4. Do not complete lines 5 and 6. Enter
“Exempt” on line 7.
If you claim exemption, but later your situa-
tion changes so that you will have to pay income
tax after all, you must file a new Form W-4 within
10 days after the change. If you claim exemption
in 2006, but you expect to owe income tax for
2007, you must file a new Form W-4 by Decem-
ber 1, 2006.
Your claim of exempt status may be re-
viewed by the IRS. See IRS review of your
withholding, earlier.
An exemption is good for only one year.
You must give your employer a new Form W-4
by February 15 each year to continue your ex-
emption.
Supplemental Wages
Supplemental wages include bonuses, commis-
sions, overtime pay, vacation allowances, cer-
tain sick pay, and expense allowances under
certain plans. The payer can figure withholding
on supplemental wages using the same method
used for your regular wages. If these payments
are identified separately from regular wages,
your employer or other payer of supplemental
wages can withhold income tax from these
wages at a flat rate.
Expense allowances. Reimbursements or
other expense allowances paid by your em-
ployer under a nonaccountable plan are treated
as supplemental wages. A nonaccountable plan
is a reimbursement arrangement that does not
require you to account for, or prove, your busi-
ness expenses to your employer or does not
require you to return your employer’s payments
that are more than your proven expenses.
Reimbursements or other expense al-
lowances paid under an accountable plan that
are more than your proven expenses are treated
as paid under a nonaccountable plan if you do

Worksheet 1-3. Exemption From Withholding for Worksheet 1-4. Exemption From Withholding for
Persons Age 65 or Older or Blind Dependents Age 65 or Older or
Use this worksheet only if, for 2005 you had a right to a refund of all federal Blind
income tax withheld because you had no tax liability. Use this worksheet only if, for 2006 you are a dependent and if, for 2005,
Caution. This worksheet does not apply if you can be claimed as a you had a right to a refund of all federal income tax withheld because you
dependent. See Worksheet 1-4 instead. had no tax liability.

1. Check the boxes below that apply to you. 1. Enter your expected earned income plus $300 1.

65 or older ❏ Blind ❏ 2. Minimum amount . . . . . . . . . . . . . . . . . . . 2. $ 850

2. Check the boxes below that apply to your spouse if you will claim 3. Compare lines 1 and 2. Enter the larger
your spouse’s exemption on your 2006 return. amount . . . . . . . . . . . . . . . . . . . . . . . . . . 3.

65 or older ❏ Blind ❏ 4. Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. 5,150

3. Add the number of boxes you checked in 5. Compare lines 3 and 4. Enter the smaller
1 and 2 above. Enter the result . . . . . . . amount . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Enter the appropriate amount from the
You can claim exemption from withholding if: following table . . . . . . . . . . . . . . . . . . . . . 6.
and the and your Single
number on 2006 total Either 65 or older or blind $1,250
line 3 above income will be Both 65 or older and blind 2,500
Your filing status is: is: no more than:
Married filing separately
Single 1 $ 9,700 Either 65 or older or blind 1,000
2 10,950 Both 65 or older and blind 2,000
Head of 1 $12,100 7. Add lines 5 and 6. Enter the result . . . . . . . . 7.
household 2 13,350 8. Enter your total expected income . . . . . . . . . 8.
Married filing 1 $ 9,450 You can claim exemption from withholding if line 7 is equal to or
separately for 2 10,450 more than line 8. You cannot claim exemption from withholding if
both 2004 and 3 11,450 line 8 is more than line 7.
2005 4 12,450
Other married 1 $17,900*
status 2 18,900*
3 19,900*
4 20,900*
* Include both spouses’ income whether you will file separately or jointly.

Qualifying 1 $14,600
widow(er) 2 15,600
You cannot claim exemption from withholding if your total income
will be more than the amount shown for your filing status.

Chapter 1 Tax Withholding for 2006 Page 13

Page 14 of 67 of Publication 505
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not return the excess payments within a reason-
able period of time.
Accountable plan. To be an accountable
plan, your employer’s reimbursement or allow-
ance arrangement must include all three of the
following rules.
• Your expenses must have a business con-
nection. That is, you must have paid or
incurred deductible expenses while per-
forming services as an employee of your
employer.
• You must adequately account to your em-
ployer for these expenses within a reason-
able period of time.
• You must return any excess reimburse-
ment or allowance within a reasonable pe-
riod of time.
An excess reimbursement or allowance is
any amount you are paid that is more than the
business-related expenses that you adequately
accounted for to your employer.
The definition of reasonable period of time
depends on the facts and circumstances of your
situation. However, regardless of the facts and
circumstances of your situation, actions that
take place within the times specified in the fol-
lowing list will be treated as taking place within a
reasonable period of time.
• You receive an advance within 30 days of
the time you have an expense.
• You adequately account for your ex-
penses within 60 days after they were paid
or incurred.
• You return any excess reimbursement
within 120 days after the expense was
paid or incurred.
• You are given a periodic statement (at
least quarterly) that asks you to either re-
turn or adequately account for outstanding
advances and you comply within 120 days
of the statement.
Nonaccountable plan. Any plan that does not
meet the definition of an accountable plan is
considered a nonaccountable plan.
For more information about accountable and
nonaccountable plans, see chapter 6 of Publica-
tion 463, Travel, Entertainment, Gift, and Car
Expenses.
Penalties
You may have to pay a penalty of $500 if both of
the following apply.
• You make statements or claim withholding
allowances on your Form W-4 that reduce
the amount of tax withheld.
• You have no reasonable basis for those
statements or allowances at the time you
prepare your Form W-4.
There is also a criminal penalty for willfully
supplying false or fraudulent information on your
Form W-4 or for willfully failing to supply informa-
tion that would increase the amount withheld.
The penalty upon conviction can be either a fine
of up to $1,000 or imprisonment for up to one
year, or both.
Page 14 Chapter 1 Tax Withholding for 2006
These penalties will apply if you deliberately
and knowingly falsify your Form W-4 in an at-
tempt to reduce or eliminate the proper withhold-
ing of taxes. A simple error, an honest mistake,
will not result in one of these penalties. For
example, a person who has tried to figure the
number of withholding allowances correctly, but
claims seven when the proper number is six, will
not be charged a Form W-4 penalty. However,
see chapter 4 for information on the underpay-
ment penalty.
Tips
The tips you receive while working on your job
are considered part of your pay. You must in-
clude your tips on your tax return on the same
line as your regular pay. However, tax is not
withheld directly from tip income, as it is from
your regular pay. Nevertheless, your employer
will take into account the tips you report when
figuring how much to withhold from your regular
pay.
Reporting tips to your employer. If you re-
ceive tips of $20 or more in a month while work-
ing for any one employer, you must report to
your employer the total amount of tips you re-
ceive on the job during the month. The report is
due by the 10th day of the following month.
If you have more than one job, make a sepa-
rate report to each employer. Report only the
tips you received while working for that em-
ployer, and only if they total $20 or more for the
month.
How employer figures amount to withhold.
The tips you report to your employer are counted
as part of your income for the month you report
them. Your employer can figure your withholding
in either of two ways.
• By withholding at the regular rate on the
sum of your pay plus your reported tips.
• By withholding at the regular rate on your
pay plus a percentage of your reported
tips.
Not enough pay to cover taxes. If your regu-
lar pay is not enough for your employer to with-
hold all the tax (including income tax, social
security tax, Medicare tax, or railroad retirement
tax) due on your pay plus your tips, you can give
your employer money to cover the shortage.
If you do not give your employer money to
cover the shortage, your employer will first with-
hold as much social security tax, Medicare tax,
or railroad retirement tax as possible, up to the
proper amount, and then withhold income tax up
to the full amount of your pay. If not enough tax
is withheld, you may have to pay estimated tax.
When you file your return, you also may have to
pay any social security tax, Medicare tax, or
railroad retirement tax your employer could not
withhold.
Tips not reported to your employer. On your
tax return, you must report all the tips you re-
ceive during the year, even tips you do not report
to your employer. Make sure you are having
enough tax withheld, or are paying enough esti-
mated tax, to cover all your tip income.
13:46 - 5-APR-2006
Allocated tips. If you work in a large estab-
lishment that serves food or beverages to cus-
tomers, your employer may have to report an
allocated amount of tips on your Form W-2.
Your employer should not withhold income
tax, social security tax, Medicare tax, or railroad
retirement tax on the allocated amount. With-
holding is based only on your pay plus your
reported tips. Your employer should refund to
you any incorrectly withheld tax.
More information. For more information on
the reporting and withholding rules for tip in-
come and on tip allocation, get Publication 531,
Reporting Tip Income.
Taxable Fringe
Benefits
The value of certain noncash fringe benefits you
receive from your employer is considered part of
your pay. Your employer generally must with-
hold income tax on these benefits from your
regular pay.
Your employer can choose not to withhold
income tax on the value of your personal use of
an employer-provided car, truck, or other high-
way motor vehicle. Your employer must notify
you if this choice is made.
When benefits are considered paid. Your
employer can choose to treat a fringe benefit as
paid by the pay period, by the quarter, or on
some other basis as long as the benefit is con-
sidered paid at least once a year. Your employer
can treat the benefit as being paid on one or
more dates during the year, even if you get the
entire benefit at one time.
Special rule. Your employer can choose to
treat a benefit provided during November or
December as paid in the next year. Your em-
ployer must notify you if this rule is used.
Example. Your employer considers the
value of benefits paid from November 1, 2004,
through October 31, 2005, as paid to you in
2005. To determine the total value of benefits
paid to you in 2006, your employer will add the
value of any benefits paid in November and
December of 2005 to the value of any benefits
paid in January through October of 2006.
Exceptions. Your employer cannot choose
when to withhold tax on the transfer of either real
property or personal property of a kind normally
held for investment (such as stock). Your em-
ployer must withhold tax on these benefits at the
time of the transfer.
How withholding is figured. Your employer
can either add the value of a fringe benefit to
your regular pay and figure income tax withhold-
ing on the total or withhold a flat percentage of
the benefit’s value.
If the benefit’s actual value cannot be deter-
mined when it is paid or treated as paid, your
employer can use a reasonable estimate. Your
employer must determine the actual value of the
benefit by January 31 of the next year. If the
actual value is more than the estimate, your
employer must pay the IRS any additional with-
holding tax required. Your employer has until
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April 1 of that next year to recover from you the
additional tax paid to the IRS for you.
How your employer reports your benefits.
Your employer must report on Form W-2 the
total of the taxable fringe benefits paid or treated
as paid to you during the year and the tax with-
held for the benefits. These amounts can be
shown either on the Form W-2 for your regular
pay or on a separate Form W-2. If your employer
provided you with a car, truck, or other motor
vehicle and chose to treat all of your use of it as
personal, its value must be either separately
shown on Form W-2 or reported to you on a
separate statement.
More information. For information on fringe
benefits, see Fringe Benefits under Employee
Compensation in Publication 525, Taxable and
Nontaxable Income.
Sick Pay
Sick pay is a payment to you to replace your
regular wages while you are temporarily absent
from work due to sickness or personal injury. To
qualify as sick pay, it must be paid under a plan
to which your employer is a party.
If you receive sick pay from your employer or
an agent of your employer, income tax must be
withheld. An agent who does not pay regular
wages to you may choose to withhold income
tax at a flat rate.
However, if you receive sick pay from a third
party who is not acting as an agent of your
employer, income tax will be withheld only if you
choose to have it withheld. See Form W-4S,
later.
If you receive payments under a plan in
which your employer does not participate (such
as an accident or health plan where you paid all
the premiums), the payments are not sick pay
and usually are not taxable.
Union agreements. If you receive sick pay
under a collective bargaining agreement be-
tween your union and your employer, the agree-
ment may determine the amount of income tax
withholding. See your union representative or
your employer for more information.
Form W-4S. If you choose to have income tax
withheld from sick pay paid by a third party, such
as an insurance company, you must fill out Form
W-4S. Its instructions contain a worksheet you
can use to figure the amount you want withheld.
They also explain restrictions that may apply.
Give the completed form to the payer of your
sick pay. The payer must withhold according to
your directions on the form.
Form W-4S remains in effect until you
change or cancel it, or stop receiving payments.
You can change your withholding by giving a
new Form W-4S or a written notice to the payer
of your sick pay.
Estimated tax. If you do not request withhold-
ing on Form W-4S, or if you do not have enough
tax withheld, you may have to pay estimated tax.
If you do not pay enough estimated tax or have
enough income tax withheld, you may have to
pay a penalty. See chapters 2 and 4.
Pensions and
Annuities
Income tax usually will be withheld from your
pension or annuity distributions unless you
choose not to have it withheld. This rule applies
to distributions from:
• A traditional individual retirement arrange-
ment (IRA),
• A life insurance company under an en-
dowment, annuity, or life insurance con-
tract,
• A pension, annuity, or profit-sharing plan,
• A stock bonus plan, and
• Any other plan that defers the time you
receive compensation.
The amount withheld depends on whether
you receive payments spread out over more
than one year (periodic payments), within one
year (nonperiodic payments), or as an eligible
rollover distribution (ERD). You cannot choose
not to have income tax withheld from an ERD.
ERDs are discussed on this page under Eligible
Rollover Distributions.
Nontaxable part. The part of your pension or
annuity that is a return of your investment in your
retirement plan, the amount you paid into the
plan or its cost to you, is not taxable. Income tax
will not be withheld from the part of your pension
or annuity that is not taxable. The tax withheld
will be figured on, and cannot be more than, the
taxable part.
For information about figuring the part of
your pension or annuity that is not taxable, see
Publication 575, Pension and Annuity Income.
Periodic Payments
Withholding from periodic payments of a pen-
sion or annuity is figured in the same way as
withholding from salaries and wages. To tell the
payer of your pension or annuity how much you
want withheld, fill out Form W-4P or a similar
form provided by the payer. Follow the rules
discussed under Salaries and Wages, earlier, to
fill out your Form W-4P.
Note. Use Form W-4, not Form W-4P, if you
receive any of the following.
• Military retirement pay.
• Payments from certain nonqualified de-
ferred compensation plans. These are em-
ployer plans that pay part of your
compensation at a later time, but are not
tax-qualified deferred compensation plans.
See Nonqualified Deferred Compensation
and Section 457 Plans in Publication 957,
Reporting Back Pay and Special Wage
Payments to the Social Security Adminis-
tration.
• Payments from a state or local deferred
compensation plan.
Withholding rules. The withholding rules for
pensions and annuities differ from those for sal-
aries and wages in the following ways.
Chapter 1
13:46 - 5-APR-2006
• If you do not fill out a withholding certifi-
cate, tax will be withheld as if you were
married and claiming three withholding al-
lowances. This means that tax will be with-
held only if your pension or annuity is at
least $1,480 a month (or $17,760 a year).
• You can choose not to have tax withheld,
regardless of how much tax you owed last
year or expect to owe this year. You do
not have to qualify for exemption. See
Choosing Not To Have Income Tax With-
held, later.
• If you do not give the payer your social
security number (in the required manner)
or the IRS notifies the payer before any
payment or distribution is made that you
gave it an incorrect social security num-
ber, tax will be withheld as if you were
single and were claiming no withholding
allowances. This means that tax will be
withheld if your pension or annuity is at
least $230 a month (or $2,760 a year).
Effective date of withholding certificate. If
you give your withholding certificate (Form
W-4P or a similar form) to the payer on or before
the date your payments start, it will be put into
effect by the first payment made more than 30
days after you submit the certificate.
If you give the payer your certificate after
your payments start, it will be put into effect with
the first payment which is at least 30 days after
you submit it. However, the payer can elect to
put it into effect earlier.
Nonperiodic Payments
Tax will be withheld at a flat rate on any nonperi-
odic payments you receive.
Because withholding on nonperiodic pay-
ments does not depend on withholding al-
lowances or whether you are married or single,
you cannot use Form W-4P to tell the payer how
much to withhold. But you can use Form W-4P
to specify that an additional amount be withheld.
You can also use Form W-4P to choose not to
have tax withheld or to revoke a choice not to
have tax withheld.
You may need to use Form W-4P to
! ask for additional withholding. If you
do not have enough tax withheld, you
CAUTION
may need to pay estimated tax, as explained in
chapter 2.
Eligible Rollover
Distributions
A distribution you receive that is eligible to be
rolled over tax free into a qualified retirement or
annuity plan is called an eligible rollover distribu-
tion (ERD). This is the taxable part of any distri-
bution from a qualified pension plan or
tax-sheltered annuity that is not any of the fol-
lowing.
1. A required minimum distribution.
2. One of a series of substantially equal peri-
odic pension or annuity payments made
over:
Tax Withholding for 2006 Page 15
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a. Your life (or your life expectancy) or the
joint lives of you and your beneficiary
(or your life expectancies), or
b. A specified period of 10 or more years.
3. A hardship distribution.
The payer of a distribution must withhold at a
flat rate on any part of an ERD that is not rolled
over directly to another qualified plan. You can-
not elect not to have withholding on these distri-
butions. No withholding is required on any part
paid directly to another plan.
Choosing Not To Have
Income Tax Withheld
For payments other than eligible rollover distri-
butions, you can choose not to have income tax
withheld. The payer will tell you how to make this
choice. If you use Form W-4P, check the box on
line 1 to make this choice. This choice will re-
main in effect until you decide you want with-
holding.
The payer must withhold if either of the fol-
lowing applies:
• You do not give the payer your social se-
curity number (in the required manner), or
• The IRS notifies the payer, before any
payment or distribution is made, that you
gave it an incorrect social security num-
ber.
If you do not have any income tax withheld
from your pension or annuity, or if you do not
have enough withheld, you may have to pay
estimated tax. See chapter 2.
If you do not pay enough tax either through
estimated tax or withholding, you may have to
pay a penalty. See chapter 4 for information
about this penalty.
Outside the United States. You generally
must have tax withheld from pension or annuity
benefits delivered outside of the United States.
However, if you are a U.S. citizen or resident
alien, you can choose not to have tax withheld if
you give the payer of the benefits a home ad-
dress in the United States or in a U.S. posses-
sion. The payer must withhold tax if you provide
a U.S. address for a nominee, trustee, or agent
to whom the benefits are to be delivered, but do
not provide your own home address in the
United States or in a U.S. possession.
Notice required of payer. The payer of your
pension or annuity must send you a notice telling
you about your right to choose not to have tax
withheld.
Generally, the payer will not send a notice to
you if it is reasonable to believe that the entire
amount you will be paid is not taxable.
Revoking a choice not to have tax withheld.
The payer of your pension or annuity will tell you
how to revoke your choice not to have income
tax withheld from periodic or nonperiodic pay-
ments. If you use Form W-4P to revoke the
choice, print “Revoked” by the checkbox on line
1 of the form.
If you use Form W-4P to revoke the choice
for periodic payments and you do not complete
line 2 of the form, the payer will withhold as if you
were married and claiming three allowances.
Page 16 Chapter 1 Tax Withholding for 2006
Gambling Winnings
Income tax is withheld at a flat rate from certain
kinds of gambling winnings.
Gambling winnings of more than $5,000 from
the following sources are subject to income tax
withholding.
• Any sweepstakes, wagering pool, or lot-
tery.
• Any other wager if the proceeds are at
least 300 times the amount of the bet.
It does not matter whether your winnings are
paid in cash, in property, or as an annuity. Win-
nings not paid in cash are taken into account at
their fair market value.
Exception. Gambling winnings from bingo,
keno, and slot machines are generally not sub-
ject to income tax withholding. However, you
may need to provide the payer with a social
security number to avoid withholding. See
Backup withholding on gambling winnings, later.
If you receive gambling winnings not subject to
withholding, you may need to pay estimated tax.
See chapter 2.
If you do not pay enough tax through with-
holding or estimated tax, you may be subject to
a penalty. See chapter 4.
Form W-2G. If a payer withholds income tax
from your gambling winnings, you should re-
ceive a Form W-2G, Certain Gambling Win-
nings, showing the amount you won and the
amount withheld.
Report the tax withheld on Form 1040, line
64.
Information to give payer. If the payer asks,
you must give the payer all the following infor-
mation.
• Your name, address, and social security
number.
• Whether you made identical wagers (ex-
plained later).
• Whether someone else is entitled to any
part of the winnings subject to withholding.
If so, you must complete Form 5754,
Statement by Person(s) Receiving Gam-
bling Winnings, and return it to the payer.
The payer will use it to prepare a Form
W-2G for each of the winners.
Identical wagers. You may have to give the
payer a statement of the amount of your win-
nings, if any, from identical wagers. If this state-
ment is required, the payer will ask you for it.
You provide this statement by signing Form
W-2G or, if required, Form 5754.
Identical wagers include two bets placed in a
pari-mutuel pool on one horse to win a particular
race. However, the bets are not identical if one
bet is “to win” and one bet is “to place.” In
addition, they are not identical if the bets were
placed in different pari-mutuel pools. For exam-
ple, a bet in a pool conducted by the racetrack
and a bet in a separate pool conducted by an
offtrack betting establishment in which the bets
are not pooled with those placed at the track are
not identical wagers.
Backup withholding on gambling winnings.
If you have any kind of gambling winnings and
do not give the payer your social security num-
13:46 - 5-APR-2006
ber, the payer may have to withhold income tax
at a flat rate. This rule applies to keno winnings
of more than $1,500, bingo and slot machine
winnings of more than $1,200, and certain other
gambling winnings of more than $600.
Unemployment
Compensation
You can choose to have income tax withheld
from unemployment compensation. To make
this choice, you will have to fill out Form W-4V
(or a similar form provided by the payer) and
give it to the payer.
Unemployment compensation is taxable. So,
if you do not have income tax withheld, you may
have to pay estimated tax. See chapter 2.
If you do not pay enough tax either through
withholding or estimated tax, you may have to
pay a penalty. See chapter 4.
Form 1099-G. If income tax is withheld from
your unemployment compensation, you will re-
ceive a Form 1099-G, Certain Government Pay-
ments. Box 1 will show the amount of
unemployment compensation you got for the
year. Box 4 will show the amount of federal
income tax withheld.
Federal Payments
You can choose to have income tax withheld
from certain federal payments you receive.
These payments are:
1. Social security benefits,
2. Tier 1 railroad retirement benefits,
3. Commodity credit loans you choose to in-
clude in your gross income, and
4. Payments under the Agricultural Act of
1949 (7 U.S.C. 1421 et seq.), or title II of
the Disaster Assistance Act of 1988, as
amended, that are treated as insurance
proceeds and that you received because:
a. Your crops were destroyed or damaged
by drought, flood, or any other natural
disaster, or
b. You were unable to plant crops be-
cause of a natural disaster described in
(a).
To make this choice, fill out Form W-4V (or a
similar form provided by the payer) and give it to
the payer.
If you do not choose to have income tax
withheld, you may have to pay estimated tax.
See chapter 2.
If you do not pay enough tax either through
withholding or estimated tax, you may have to
pay a penalty. See chapter 4.
More information. For more information
about the tax treatment of social security and
railroad retirement benefits, get Publication 915,
Social Security and Equivalent Railroad Retire-
ment Benefits. Get Publication 225, Farmer’s
Tax Guide, for information about the tax treat-
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ment of commodity credit loans or crop disaster
payments.
Backup Withholding
Banks or other businesses that pay you certain
kinds of income must file an information return
(Form 1099) with the IRS. The information re-
turn shows how much you were paid during the
year. It also includes your name and taxpayer
identification number (TIN). TINs are explained
later in this discussion.
These payments generally are not subject to
withholding. However, “backup” withholding is
required in certain situations.
Payments subject to backup withholding.
Backup withholding can apply to most kinds of
payments that are reported on Form 1099.
These include:
• Interest payments (Form 1099-INT),
• Dividends (Form 1099-DIV),
• Patronage dividends, but only if at least
half the payment is in money (Form
1099-PATR),
• Rents, profits, or other gains (Form
1099-MISC),
• Commissions, fees, or other payments for
work you do as an independent contractor
(Form 1099-MISC),
• Payments by brokers (Form 1099-B),
• Payments by fishing boat operators, but
only the part that is in money and that
represents a share of the proceeds of the
catch (Form 1099-MISC), and
• Royalty payments (Form 1099-MISC).
Backup withholding may also apply to gambling
winnings. See Backup withholding on gambling
winnings under Gambling Winnings, earlier.
Payments not subject to backup withhold-
ing. Backup withholding does not apply to
payments reported on Form 1099-MISC (other
than payments by fishing boat operators and
royalty payments) unless at least one of the
following three situations applies.
• The amount you receive from any one
payer is $600 or more.
• The payer had to give you a Form 1099
last year.
• The payer made payments to you last
year that were subject to backup withhold-
ing.
Form 1099 and backup withholding are gener-
ally not required for a payment of less than $10.
Withholding rules. When you open a new
account, make an investment, or begin to re-
ceive payments reported on Form 1099, the
bank or other business will give you Form W-9,
Request for Taxpayer Identification Number and
Certification, or a similar form. You must show
your TIN on the form and, if your account or
investment will earn interest or dividends, you
also must certify (under penalties of perjury) that
your TIN is correct and that you are not subject
to backup withholding.
The payer must withhold at a flat rate in the
following situations.
• You do not give the payer your TIN in the
required manner.
• The IRS notifies the payer that the TIN
you gave is incorrect.
• You are required, but fail, to certify that
you are not subject to backup withholding.
• The IRS notifies the payer to start with-
holding on interest or dividends because
you have underreported interest or divi-
dends on your income tax return. The IRS
will do this only after it has mailed you four
notices over at least a 210-day period.
Taxpayer identification number. Your TIN
is one of the following three numbers.
• Your social security number (SSN).
• Your employer identification number.
• An IRS individual taxpayer identification
number (ITIN). Aliens who do not have an
SSN and are not eligible to get one should
get an ITIN. Use Form W-7, Application
for IRS Individual Taxpayer Identification
Number, to apply for an ITIN.
An ITIN is for tax use only. It does not entitle
you to social security benefits or change your
employment or immigration status under U.S.
law. For more information on ITINs, get Publica-
tion 1915, Understanding Your IRS Individual
Taxpayer Identification Number.
How to prevent or stop backup withholding.
If you have been notified by a payer that the TIN
Chapter 1
13:46 - 5-APR-2006
you gave is incorrect, you can usually prevent
backup withholding from starting or stop backup
withholding once it has begun by giving the
payer your correct name and TIN. You must
certify that the TIN you give is correct.
However, the payer will provide additional
instructions if the TIN you gave needs to be
validated by the Social Security Administration
or by the IRS. This may happen if both the
following conditions exist.
1. The IRS notifies the payer twice within 3
calendar years that a TIN you gave for the
same account is incorrect.
2. The incorrect TIN is still being used on the
account when the payer receives the sec-
ond notice.
Underreported interest or dividends. If
you have been notified that you underreported
interest or dividends, you must request a deter-
mination from the IRS to prevent backup with-
holding from starting or to stop backup
withholding once it has begun. You must show
that at least one of the following situations ap-
plies.
• No underreporting occurred.
• You have a bona fide dispute with the IRS
about whether an underreporting oc-
curred.
• Backup withholding will cause or is caus-
ing an undue hardship and it is unlikely
that you will underreport interest and divi-
dends in the future.
• You have corrected the underreporting by
filing a return if you did not previously file
one and by paying all taxes, penalties, and
interest due for any underreported interest
or dividend payments.
If the IRS determines that backup withholding
should stop, it will provide you with certification
and will notify the payers who were sent notices
earlier.
Penalties. There are civil and criminal penal-
ties for giving false information to avoid backup
withholding. The civil penalty is $500. The crimi-
nal penalty, upon conviction, is a fine of up to
$1,000 or imprisonment of up to one year, or
both.
Tax Withholding for 2006 Page 17
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2.
Estimated Tax
for 2006
What’s New for 2006
This section summarizes important changes
that could affect your estimated tax payments
for 2006. More information on these and other
changes can be found in Publication 553.
Additional exemption for housing individu-
als displaced by Hurricane Katrina. You
may be able to claim an additional exemption
amount of $500 per person (up to $2,000) if you
provided housing to a person who was dis-
placed from his or her main home as a result of
Hurricane Katrina. For more information, see
Taxpayers housing individuals displaced by
Hurricane Katrina, later in this chapter.
Personal exemption and itemized deduction
phaseouts reduced. The phaseouts of the
limitations on personal exemptions and itemized
deductions are reduced by 331/3%.
Earned income credit (EIC). You may be
able to take the EIC if:
• A child lived with you and you earned less
than $36,348 ($38,348 if married filing
jointly), or
• A child did not live with you and you
earned less than $12,120 ($14,120 if mar-
ried filing jointly).
For more information, see Publication 596,
Earned Income Credit (EIC).
Retirement savings plans. The following
paragraphs highlight changes that affect individ-
ual retirement arrangements (IRAs) and pen-
sion plans. For more information, see
Publication 590, Individual Retirement Arrange-
ments (IRAs).
Traditional or Roth IRA contribution lim-
its increased. The contribution limit to a tradi-
tional or Roth IRA for 2006 is increased to
$5,000 if you are 50 or older.
Traditional IRA deduction limits increased.
For 2006, if you are covered by a retirement plan
at work and your filing status is married filing
jointly or a qualifying widow(er), your deduction
for contributions to a traditional IRA will be re-
duced (phased out) if your modified adjusted
gross income (AGI) is more than $75,000 but
less than $85,000.
Additional salary reduction contributions
to SIMPLE IRAs. For 2006, additional salary
reduction contributions can be made to your
SIMPLE IRA if you meet certain requirements.
For more information, see How Much Can Be
Contributed on Your Behalf? in Publication 590,
chapter 3.
Standard mileage rates. For tax years begin-
ning in 2006, the standard mileage rate for the
cost of operating your car is:
Page 18 Chapter 2 Estimated Tax for 2006
• 441/2 cents a mile for all business miles
driven,
• 18 cents a mile for the use of your car for
medical reasons,
• 18 cents a mile for the use of your car for
a deductible move,
• 32 cents a mile for the use of your car to
provide relief related to Hurricane Katrina,
and
• 14 cents a mile for the use of your car for
charitable reasons not related to Hurricane
Katrina.
Alternative motor vehicles and refueling
property. You may be able to take a credit if
you place an energy efficient motor vehicle or
alternative fuel vehicle refueling property in
service in 2006. You can no longer take a de-
duction for clean-fuel vehicles or refueling prop-
erty. For details, see Form 8910 (Form 8911 for
alternative fuel vehicle refueling property).
Clean renewable energy bond credit. You
may be able to take a credit based on the face
amount of any clean renewable energy bond
you hold during 2006. The amount of any credit
claimed must be included as interest income.
For details, see Form 8912.
Nonconventional source fuel credit. You
may be able to claim the nonconventional
source fuel credit for facilities producing coke or
coke gas. Also, the nonconventional source fuel
credit is now a general business credit subject to
the general business credit tax liability limits. In
general, any 2006 unused credit can be carried
forward 20 years. See Form 8907 for details.
Qualified contributions expired. You can no
longer elect to treat gifts by cash or check as
qualified contributions on Schedule A. Qualified
contributions for which you made this election
were not subject to the 50% of adjusted gross
income limit or the overall limit on itemized de-
ductions.
Residential Energy Credits
If you make energy saving improvements to
your home in 2006, you may be able to take two
new credits, the nonbusiness energy property
credit and the residential energy efficient prop-
erty credit. For credit purposes, costs are
treated as being paid when the original installa-
tion of the item is completed, or in the case of
costs connected with the construction or recon-
struction of a building, when your original use of
the constructed or reconstructed building be-
gins. If less than 80% of the use of an item is for
nonbusiness purposes, only that portion of the
expenses that are allocable to the nonbusiness
use can be used to determine the credit.
A home includes a house, houseboat, mobile
home, cooperative apartment, condominium,
and certain manufactured homes. For factors
used in determining if a home is your main
home, see Publication 523. You must reduce
the basis of your home by the amount of credit
allowed.
13:46 - 5-APR-2006
If you are a member of a qualified
TIP condominium management associa-
tion for a condominium that you own
or a tenant-stockholder in a cooperative housing
corporation, you are treated as having paid your
proportionate share of any expenses of such
association or corporation. Credits must be allo-
cated based on the ratio of individual qualified
costs to total qualified costs in the case of joint
occupancy.
Nonbusiness energy property credit. You
may be able to take a credit equal to (a) 10% of
the amount paid in 2006 for qualified energy
efficiency improvements installed during 2006,
plus (b) any residential energy property costs
paid in 2006. However, this credit is limited as
follows.
• A total accumulated credit limit of $500 for
all tax years.
• A maximum accumulated credit limit of
$200 for windows for all tax years.
• A maximum credit for residential energy
property costs of $50 for any advanced
main air circulating fan; $150 for any quali-
fied natural gas, propane, or oil furnace or
hot water boiler; and $300 for any item of
energy efficient building property.
Qualified energy efficiency improve-
ments. Qualified energy efficiency improve-
ments are the following items installed on or in
your main home located in the United States if
such items are new and can be expected to
remain in use for at least 5 years.
• Any insulation material or system that is
specifically or primarily designed to reduce
the heat loss or gain of a home when
installed in or on such home.
• Exterior windows (including skylights).
• Exterior doors.
• Any metal roof installed on a home, but
only if such roof has appropriate pig-
mented coatings specifically and primarily
designed to reduce the heat gain of such
home.
To qualify for the credit, qualified en-
!
CAUTION
ergy efficiency improvements must
meet certain energy efficiency re-
quirements.
Residential energy property costs. Resi-
dential energy property costs are costs of new
qualified energy property that is installed on or in
connection with your main home located in the
United States. This includes labor costs properly
allocable to the onsite preparation, assembly, or
original installation of the property. Qualified en-
ergy property is any of the following.
• Certain electric heat pump water heaters;
electric heat pumps; geothermal heat
pumps; central air conditioners; and natu-
ral gas, propane, or oil water heaters.
• Qualified natural gas, propane, or oil fur-
nace or hot water boilers.
• Certain advanced main air circulating fans
used in a natural gas, propane, or oil fur-
nace.
Page 19 of 67 of Publication 505
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To qualify for the credit, qualified en-
!
CAUTION
ergy property must meet certain per-
formance and quality standards.
Residential energy efficient property credit.
You may be able to take a credit of 30% of your
costs of qualified photovoltaic property, solar
water heating property, and fuel cell property.
This includes labor costs properly allocable to
the onsite preparation, assembly, or original in-
stallation of the property and for piping or wiring
to interconnect such property to the home. This
credit is limited to:
• $2,000 for qualified photovoltaic property
costs,
• $2,000 for qualified solar water heating
property costs, and
• $500 for each half kilowatt of capacity of
qualified fuel cell property for which quali-
fied fuel cell property costs are paid.
Costs allocable to a swimming pool,
! hot tub, or any other energy storage
CAUTION medium that has a function other than
the function of such storage do not qualify for the
residential energy efficiency credit.
Qualified photovoltaic property costs.
Qualified photovoltaic property costs are costs
for property that uses solar energy to generate
electricity for use in a home located in the United
States and used by you as a home. This in-
cludes costs relating to a solar panel or other
property installed as a roof or a portion of a roof.
Qualified solar water heating property
costs. Qualified solar water heating property
costs are costs for property to heat water for use
in a home located in the United States and used
by you as a home if at least half of the energy
used by such property for such purpose is de-
rived from the sun. This includes costs relating
to a solar panel or other property installed as a
roof or a portion of a roof. To qualify for the
credit, the property must be certified for perform-
ance by the nonprofit Solar Rating Certification
Corporation or a comparable entity endorsed by
the government of the state in which such prop-
erty is installed.
Qualified fuel cell property costs. Quali-
fied fuel cell property costs are costs for qualified
fuel cell property installed on or in connection
with your main home located in the United
States. Qualified fuel cell property is an inte-
grated system comprised of a fuel cell stack
assembly and associated balance of plant com-
ponents that converts a fuel into electricity using
electrochemical means. To qualify for the credit,
the fuel cell property must have a nameplate
capacity of at least one-half kilowatt of electricity
using an electrochemical process and an
electricity-only generation efficiency greater
than 30%.
Pending legislation may eliminate one
!
CAUTION
or more of the following changes.
Certain credits no longer allowed against al-
ternative minimum tax (AMT). The credit for
child and dependent care expenses, credit for
the elderly or the disabled, education credits,
mortgage interest credit, and carryforwards of
the District of Columbia first-time homebuyer
credit are no longer allowed against AMT and a
new tax liability limit applies. For most people,
this limit is your regular tax minus any tentative
minimum tax.
AMT exemption amount decreased. The
AMT exemption amount will decrease to
$33,750 ($45,000 if married filing jointly or a
qualifying widow(er); $22,500 if married filing
separately).
Expired tax benefits. The following tax bene-
fits have expired and will not apply for 2006.
• Deduction from adjusted gross income for
educator expenses.
• Tuition and fees deduction.
• Deduction for state and local general sales
taxes.
• District of Columbia first-time homebuyer
credit (for homes purchased after 2005).
Reminders
Estimated tax safe harbor for higher income
individuals. If your adjusted gross income for
2005 was more than $150,000 ($75,000 if mar-
ried filing a separate return), your withholding
and estimated tax payments must be at least the
smaller of 90% of your tax liability for 2006 or
110% of the tax shown on your 2005 return
(provided your 2005 return covered all 12
months) to avoid an estimated tax penalty.
Who must pay estimated tax. You must pay
estimated tax unless the total tax shown on your
return minus the amount you paid through with-
holding (including excess social security and
railroad retirement tax withholding) will be less
than $1,000.
Payment of estimated tax by electronic
funds withdrawal. You may be able to pay
your estimated tax by authorizing an automatic
withdrawal from your checking or savings ac-
count. For more information, see Payment by
Electronic Funds Withdrawal under How To Pay
Estimated Tax, later.
Employment taxes on household
employees. You must include any expected
employment (social security, Medicare, and fed-
eral unemployment) taxes for household em-
ployees when figuring your estimated tax.
Qualified dividends. The maximum tax rate
for qualified dividends is 15% (generally, 5% for
people whose other income is taxed at the 10%
or 15% rate). Use Worksheet 2-6 to figure your
estimated tax for 2006 if you expect to receive
qualified dividends during the year.
Introduction
Estimated tax is the method used to pay tax on
income that is not subject to withholding. This
includes income from self-employment, interest,
dividends, alimony, rent, gains from the sale of
assets, prizes, and awards. You also may have
to pay estimated tax if the amount of income tax
being withheld from your salary, pension, or
other income is not enough.
Chapter 2
13:46 - 5-APR-2006
Estimated tax is used to pay both income tax
and self-employment tax, as well as other taxes
and amounts reported on your tax return. If you
do not pay enough through withholding or esti-
mated tax payments, you may be charged a
penalty. If you do not pay enough by the due
date of each payment period (see When To Pay
Estimated Tax, later), you may be charged a
penalty even if you are due a refund when you
file your tax return. For information on when the
penalty applies, see chapter 4.
It would be helpful for you to keep a
TIP copy of your 2005 tax return and an
estimate of your 2006 income nearby
while reading this chapter.
Topics
This chapter discusses:
• Who must pay estimated tax,
• How to figure estimated tax (including il-
lustrated examples),
• When to pay estimated tax,
• How to figure each payment, and
• How to pay estimated tax.
Useful Items
You may want to see:
Publication
❏ 553 Highlights of 2005 Tax Changes
Form (and Instructions)
❏ 1040-ES Estimated Tax for Individuals
See chapter 5 for information about how to get
this publication and form.
Worksheets. The blank worksheets for chap-
ter 2 are placed at the end of the chapter. See
Table 2-1, on the next page, to locate what you
need.
Who Does Not Have To
Pay Estimated Tax
If you receive salaries and wages, you can avoid
having to pay estimated tax by asking your em-
ployer to take more tax out of your earnings. To
do this, file a new Form W-4 with your employer.
See chapter 1.
Estimated tax not required. You do not have
to pay estimated tax for 2006 if you meet all
three of the following conditions.
• You had no tax liability for 2005.
• You were a U.S. citizen or resident for the
whole year.
• Your 2005 tax year covered a 12-month
period.
You had no tax liability for 2005 if your total tax
(defined later under Required Annual Payment)
was zero or you did not have to file an income
tax return.
Estimated Tax for 2006 Page 19
Page 20 of 67 of Publication 505
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Who Must Pay
Estimated Tax
If you had a tax liability for 2005, you may have
to pay estimated tax for 2006.
General Rule
You must pay estimated tax for 2006 if both of
the following apply.
1. You expect to owe at least $1,000 in tax
for 2006, after subtracting your withholding
and credits.
2. You expect your withholding and credits to
be less than the smaller of:
a. 90% of the tax to be shown on your
2006 tax return, or
b. 100% of the tax shown on your 2005
tax return. Your 2005 tax return must
cover all 12 months.
You may find Figure 2-A (see next page) help-
ful in determining if you must pay estimated
tax.
Table 2-1. Where To Find Worksheets
IF you need...
the 2006 Estimated Tax Worksheet (ES Worksheet)
to estimate your taxable social security and railroad
retirement benefits — line 1 of ES Worksheet
to estimate your self-employment (SE) tax and your
deduction for one-half of your SE tax — lines 1 and
11 of ES Worksheet
to reduce your itemized deductions because your
estimated AGI is more than $150,500 ($75,250 if
married filing separately) — line 2 of ES Worksheet
to reduce your exemption amount because your
estimated AGI is more than $112,875 — line 4 of ES
Worksheet
to compute the additional exemption amount for
housing individuals displaced by Hurricane Katrina
to estimate your income tax if you have net capital
gains or qualified dividends — line 6 of ES
Worksheet
to refigure your estimated tax during the year
to figure your annualized estimated tax payments
to reduce your itemized deductions for line 6 of
Worksheet 2-8 because line 3 of Worksheet 2-8 is
more than $150,500 ($75,250 if married filing
separately)
to reduce your exemptions for line 10 of Worksheet
2-8 because line 3 of Worksheet 2-8 is more than
$112,875
to figure the tax for line 12 of Worksheet 2-8 if
estimated income includes capital gains or qualified
dividends
2006 Standard Deduction Tables
2006 Tax Rate Schedules
Page 20 Chapter 2 Estimated Tax for 2006
If all your income will be subject to
TIP income tax withholding, you probably
do not need to pay estimated tax.
Example 1. To figure whether she should
pay estimated tax for 2006, Jane, who files as
head of household, uses the following informa-
tion.
Expected AGI for 2006 . . . . . . . . .
AGI for 2005 . . . . . . . . . . . . . . .
Tax shown on 2005 return . . . . . .
Tax expected to be shown on 2006
return . . . . . . . . . . . . . . . . . .
Tax expected to be withheld in 2006
Jane uses Figure 2-A (on the next page).
Jane’s answer to the chart’s first question is
YES, she expects to owe at least $1,000 for
2006 after subtracting her withholding from her
expected tax ($11,501 − $10,400 = $1,101). Her
answer to the chart’s second question is also
YES, she expects her income tax withholding
($10,400) to be at least 90% of the tax to be
shown on her 2006 return ($11,501 × 90% =
$10,351). Jane does not need to pay estimated
tax.
Example 2. The facts are the same as in
Example 1, except that Jane expects only
$8,500 tax to be withheld in 2006. Because that
THEN use... ON page...
23, 33
Worksheet 2-1
Worksheet 2-2
Worksheet 2-3
Worksheet 2-4
Worksheet 2-5
Worksheet 2-6
Worksheet 2-7
Worksheet 2-8
Worksheet 2-9
Worksheet 2-10
Worksheet 2-11
13:46 - 5-APR-2006
is less than $10,351, her answer to the chart’s
second question is NO.
Jane’s answer to the chart’s third question is
also NO, she does not expect her income tax
withholding ($8,500) to be at least 100% of the
tax shown on her 2005 return ($10,504). Jane
must pay estimated tax for 2006.
Example 3. The facts are the same as in
. . . $78,725 Example 2, except that the tax shown on Jane’s
. . . $73,700 2005 return was $8,000. Because she expects
. . . $10,504 to have more than $8,000 withheld in 2006, her
answer to the chart’s third question is YES. Jane
. . . $11,501 does not need to pay estimated tax for 2006.
. . . $10,400
Married Taxpayers
To figure whether you must pay estimated tax,
apply the rules discussed here to your separate
estimated income. If you qualify to make joint
estimated tax payments, you can apply these
rules on a joint basis.
You and your spouse can qualify to make
joint estimated tax payments even if you are not
living together.
However, you and your spouse cannot make
joint estimated tax payments if:
• You are legally separated under a decree
of divorce or separate maintenance,
• You and your spouse have different tax
years, or
• Either spouse is a nonresident alien (un-
less you elected to be treated as a resi-
dent alien). See Choosing Resident Alien
Status in Publication 519.
34 Whether you and your spouse make joint esti-
mated tax payments or separate payments will
not affect your choice of filing a joint tax return or
34
separate returns for 2006.
2005 separate returns and 2006 joint return.
35 If you plan to file a joint return with your spouse
for 2006, but you filed separate returns for 2005,
your 2005 tax is the total of the tax shown on
your separate returns. You filed a separate re-
35 turn if you filed as single, head of household, or
married filing separately.
35 2005 joint return and 2006 separate returns.
If you plan to file a separate return for 2006, but
you filed a joint return for 2005, your 2005 tax is
36 your share of the tax on the joint return. You file
a separate return if you file as single, head of
household, or married filing separately.
37 To figure your share of the tax on a joint
return, first figure the tax both you and your
38-39 spouse would have paid had you filed separate
40 returns for 2005 using the same filing status as
for 2006. Then multiply the tax on the joint return
by the following fraction:
The tax you would have paid
40 had you filed a separate return
The total tax you and your
spouse would have paid had
41 you filed separate returns
Example. Joe and Heather filed a joint re-
42 turn for 2005 showing taxable income of
$48,500 and a tax of $6,549. Of the $48,500
37 taxable income, $40,100 was Joe’s and the rest
was Heather’s. For 2006, they plan to file mar-
Page 21 of 67 of Publication 505
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ried filing separately. Joe figures his share of the
tax on the 2005 joint return as follows:
Tax on $40,100 based on separate return
Tax on $8,400 based on separate return . .
Total . . . . . . . . . . . . . . . . . . . . . . . .
Joe’s percentage of total ($6,696 ÷ $7,595)
Joe’s share of tax on joint return
($6,549 × 88%) . . . . . . . . . . . . . . . .
Special Rules
There are special rules for farmers, fishermen,
and certain higher income taxpayers.
Farmers and Fishermen
If at least two-thirds of your gross income for
2005 or 2006 is from farming or fishing, substi-
tute 662/3% for 90% in (2a) under General Rule,
earlier.
Gross income. Your gross income is all in-
come you receive in the form of money, goods,
property, and services that is not exempt from
tax. To determine whether two-thirds of your
gross income for 2005 was from farming or fish-
ing, use as your gross income the total of the
income (not loss) amounts.
Joint returns. On a joint return, you must add
your spouse’s gross income to your gross in-
come to determine if at least two-thirds of your
total gross income is from farming or fishing.
Gross income from farming. This is income
from cultivating the soil or raising agricultural
commodities. It includes the following amounts.
• Income from operating a stock, dairy,
poultry, bee, fruit, or truck farm.
Figure 2-A. Do You Have To Pay Estimated Tax?
Start Here
Will you owe $1000 or
more for 2006 after
subtracting income tax
withholding and credits
from your total tax? (Do
not subtract any estimated
tax payments.)
No
* 110% if less than two-thirds of your gross income for 2005 and 2006 is from farming or fishing and your 2005 adjusted gross income
was more than $150,000 ($75,000 if your filing status from 2006 is married filing a separate return).
• Income from a plantation, ranch, nursery,
range, orchard, or oyster bed.
$6,696 • Crop shares for the use of your land.
899
$7,595
• Gains from sales of draft, breeding, dairy,
or sporting livestock.
88%
For 2005, gross income from farming is the
$5,763
total of the amounts from:
• Schedule F (Form 1040), Profit or Loss
From Farming, line 11,
• Form 4835, Farm Rental Income and Ex-
penses, line 7,
• Your share of a partnership’s or S
corporation’s gross income from farming,
• Your share of distributable net income
from farming of an estate or trust,
• Your gains from sales of draft, breeding,
dairy, or sporting livestock shown on Form
4797, Sales of Business Property.
Wages you receive as a farm employee and
wages you receive from a farm corporation are
not gross income from farming.
Gross income from fishing. This is income
from catching, taking, harvesting, cultivating, or
farming any kind of fish, shellfish (for example,
clams and mussels), crustaceans (for example,
lobsters, crabs, and shrimp), sponges, sea-
weeds, or other aquatic forms of animal and
vegetable life.
Gross income from fishing includes the fol-
lowing amounts.
• Income for services as an officer or crew
member of a vessel while the vessel is
engaged in fishing.
Will your income tax withholding
and credits be at least 90%
Yes No
䊳 (66-2/3% for farmers and
fishermen) of the tax shown on
your 2006 tax return?
Yes
䊲
You are NOT required to pay
䊳 䊴
estimated tax.
13:46 - 5-APR-2006
• Your share of a partnership’s or S
corporation’s gross income from fishing.
• Income for services normally performed in
connection with fishing.
Services normally performed in connection with
fishing include:
• Shore service as an officer or crew mem-
ber of a vessel engaged in fishing, and
• Services that are necessary for the imme-
diate preservation of the catch, such as
cleaning, icing, and packing the catch.
Higher Income Taxpayers
If your adjusted gross income (AGI) for 2005
was more than $150,000 ($75,000 if your filing
status for 2006 is married filing a separate re-
turn), substitute 110% for 100% in (2b) under
General Rule, earlier. This rule does not apply to
farmers and fishermen.
For 2005, AGI is the amount shown on Form
1040, line 37; Form 1040A, line 21; and Form
1040EZ, line 4.
Aliens
Resident and nonresident aliens may also have
to pay estimated tax. Resident aliens should
follow the rules in this publication, unless noted
otherwise. Nonresident aliens should get Form
1040-ES(NR), U.S. Estimated Tax for Nonresi-
dent Alien Individuals.
You are an alien if you are not a citizen or
national of the United States. You are a resident
alien if you either have a green card or meet the
substantial presence test. For more information
Will your income tax
withholding and credits be at
No
least 100% * of the tax shown
䊳
on your 2005 tax return?
Note: Your 2005 return must
have covered a 12-month
period.
Yes
You MUST make estimated
tax payment(s) by the
required due date(s).
䊴
See When To Pay
Estimated Tax.
Chapter 2 Estimated Tax for 2006 Page 21
Page 22 of 67 of Publication 505
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about the substantial presence test, see Publi-
cation 519.
Estates and Trusts
Estates and trusts also must pay estimated tax.
However, estates (and certain grantor trusts that
receive the residue of the decedent’s estate
under the decedent’s will) are exempt from pay-
ing estimated tax for the first two years after the
decedent’s death.
Estates and trusts must use Form 1041-ES,
Estimated Income Tax for Estates and Trusts, to
figure and pay estimated tax.
How To Figure
Estimated Tax
To figure your estimated tax, you must figure
your expected adjusted gross income, taxable
income, taxes, deductions, and credits for the
year.
When figuring your 2006 estimated tax, it
may be helpful to use your income, deductions,
and credits for 2005 as a starting point. Use your
2005 federal tax return as a guide. You can use
Form 1040-ES to figure your estimated tax.
You must make adjustments both for
changes in your own situation and for recent
changes in the tax law. For 2006, there are
several changes in the law. Some of these
changes are discussed under What’s New for
2006 at the beginning of this chapter. For infor-
mation about these and other changes in the
law, get Publication 553 or visit the IRS web site
at www.irs.gov.
The instructions for Form 1040-ES include a
worksheet to help you figure your estimated tax.
Keep the worksheet for your records.
2006 Estimated Tax
Worksheet
Use the worksheet (Figure 2-B) on the next page
to help guide you through the information about
completing the 2006 Estimated Tax Worksheet.
You will also find a blank worksheet at the end of
the chapter.
Expected Adjusted Gross
Income —Line 1
Your expected adjusted gross income for 2006
(line 1 of the 2006 Estimated Tax Worksheet) is
your expected total income minus your expected
adjustments to income.
Total income. Include in your total income all
the income you expect to receive during the
year, even income that is subject to withholding.
However, do not include income that is tax ex-
empt.
Total income includes all income and loss for
2006 that, if you had received it in 2005, would
have been included on your 2005 tax return in
the total on line 22 of Form 1040, line 15 of Form
1040A, or line 4 of Form 1040EZ.
Page 22 Chapter 2 Estimated Tax for 2006
Social security and railroad retire-
ment benefits. If you expect to re-
ceive social security or tier 1 railroad
retirement benefits during the year, use Work-
sheet 2-1 at the end of this chapter to figure the
amount of expected taxable benefits you should
include on line 1 of the 2006 Estimated Tax
Worksheet.
Adjustments to income. Be sure to subtract
from your expected total income all of the adjust-
ments you expect to take on your 2006 tax
return. If you are using your 2005 return as a
guide and filed Form 1040, your adjustments for
2005 were on lines 23 – 35, plus any write-in
adjustments on line 36. If you filed Form 1040A,
your 2005 adjustments were on lines 16 – 19.
Self-employed. If you expect to have
income from self-employment, use
Worksheet 2-2 at the end of this chap-
ter to figure your expected self-employment tax
and your deduction for one-half of your self-em-
ployment tax. Include the amount on line 10 in
your expected adjustments to income. If you file
a joint return and both you and your spouse
have net earnings from self-employment, you
must each complete a separate worksheet.
Expected Taxable Income —
Lines 2 –5
Reduce your expected adjusted gross income
for 2006 (line 1 of the 2006 Estimated Tax Work-
sheet), by either your expected itemized deduc-
tions or your standard deduction and by your
exemptions (lines 2 through 5 of the 2006 Esti-
mated Tax Worksheet).
Itemized deductions — Line 2. If you expect
to claim itemized deductions on your 2006 tax
return, subtract them from your expected ad-
justed gross income.
Itemized deductions are the deductions that
can be claimed on Schedule A of Form 1040.
Phaseout of itemized deductions.
For 2006, your total itemized deduc-
tions may be reduced if your adjusted
gross income (AGI) is more than $150,500
($75,250 if married filing separately). If you ex-
pect your AGI to be more than that amount, use
Worksheet 2-3 at the end of this chapter to figure
the amount to enter on line 2 of your 2006
Estimated Tax Worksheet.
Standard deduction — line 2. If you expect to
claim the standard deduction on your 2006 tax
return, subtract it from your expected adjusted
gross income. Use the 2006 Standard Deduc-
tion Tables at the end of this chapter to find your
standard deduction.
No standard deduction. The standard de-
duction for some individuals is zero. Your stan-
dard deduction will be zero if you:
• File a separate return and your spouse
itemizes deductions,
• Are a nonresident alien at any time during
the tax year, or
• Make a return for a period of less than 12
months because you change your ac-
counting period.
13:46 - 5-APR-2006
Exemptions — line 4. After you have sub-
tracted either your expected itemized deduc-
tions or your standard deduction from your
expected adjusted gross income, reduce the
amount remaining by $3,300 for each exemption
you expect to take on your 2006 tax return. If
another person (such as your parent) can claim
an exemption for you on his or her tax return,
you cannot claim your own personal exemption.
This is true even if the other person will not claim
your exemption or the exemption will be reduced
or eliminated under the phaseout rule.
Reduction of personal exemption
amount. For 2006, your deduction for
personal exemptions is reduced if
your adjusted gross income (AGI) is over the
AGI shown below for your filing status.
Single . . . . . . . . . . . . . . . . . . . . . $150,500
Married filing jointly or qualifying
widow(er) . . . . . . . . . . . . . . . . . . $225,750
Married filing separately . . . . . . . . . . $112,875
Head of household . . . . . . . . . . . . . $188,150
If you expect your AGI to be more than that
amount, use Worksheet 2-4 at the end of this
chapter to figure the amount to enter on line 4 of
your 2006 Estimated Tax Worksheet.
However, if in 2006 you housed individuals
displaced by Hurricane Katrina, read the follow-
ing section and complete Worksheet 2-5 before
entering an amount on line 4 of your 2006 Esti-
mated Tax Worksheet.
Taxpayers housing individuals dis-
placed by Hurricane Katrina. You
may be able to claim an additional
exemption amount of $500 per person (up to
$2,000) if you provided housing to a person who
was displaced from his or her main home be-
cause of Hurricane Katrina and all of the follow-
ing apply.
• The person displaced lived in your main
home for at least 60 consecutive days
that ended in 2006.
• You did not receive any rent or other
amount from any source for providing the
housing.
• The main home of the person displaced
was, on August 28, 2005, in the Hurri-
cane Katrina disaster area.
• The person displaced was not your
spouse or dependent.
• You did not claim the maximum exemp-
tion amount of $2,000 in 2005.
Use Worksheet 2-5 at the end of this chapter to
compute the additional exemption amount. For
more information, see Publication 4492, Infor-
mation for Taxpayers Affected by Hurricanes
Katrina, Rita, and Wilma.
Expected Taxes and Credits —
Lines 6 –13c
After you have figured your expected taxable
income (line 5 of the 2006 Estimated Tax Work-
sheet), follow the steps below to figure your
expected taxes, credits, and total tax for 2006.
Most people will have entries for only a few of
these steps. However, you should check every
step to be sure that you do not overlook any-
thing.
Page 23 of 67 of Publication 505 13:46 - 5-APR-2006

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Figure 2-B. Page 4 of the Instructions for 2006 Form 1040-ES

The 2006 Estimated Tax Worksheet is found on page 4 of the instructions for Form 1040-ES. When this
worksheet refers you to instructions (for example, “see instructions below”) or to specific page numbers, you can
find the information on pages 1-7 of the instructions for 2006 Form 1040-ES.
CAUTION

2006 Estimated Tax Worksheet Keep for Your Records

1

其
1 Adjusted gross income you expect in 2006 (see instructions below)
2 ● If you plan to itemize deductions, enter the estimated total of your itemized deductions.
Caution: If line 1 above is over $150,500 ($75,250 if married filing separately), your deduction may be
reduced. See Pub. 505 for details. 2
● If you do not plan to itemize deductions, enter your standard deduction from page 1.
3 Subtract line 2 from line 1 3
4 Exemptions. Multiply $3,300 by the number of personal exemptions. Caution: See Pub. 505 to figure the
amount to enter if you provided housing in 2006 to a person displaced by Hurricane Katrina, or if line 1 above
is over: $225,750 if married filing jointly or qualifying widow(er); $188,150 if head of household; $150,500 if
single; or $112,875 if married filing separately 4
5 Subtract line 4 from line 3 5
6 Tax. Figure your tax on the amount on line 5 by using the 2006 Tax Rate Schedules on page 5. Caution: If
you have qualified dividends or a net capital gain, see Pub. 505 to figure the tax 6
7 Alternative minimum tax from Form 6251 7
8 Add lines 6 and 7. Also include any tax from Forms 4972 and 8814 and any recapture of education credits
(see instructions below) 8
9 Credits (see instructions below). Do not include any income tax withholding on this line 9
10 Subtract line 9 from line 8. If zero or less, enter -0- 10
11 Self-employment tax (see instructions below). Estimate of 2006 net earnings from self-employment
$ ; if $94,200 or less, multiply the amount by 15.3%; if more than $94,200, multiply the
amount by 2.9%, add $11,680.80 to the result, and enter the total. Caution: If you also have wages subject to
social security tax, see Pub. 505 to figure the amount to enter 11
12 Other taxes (see instructions below) 12
13a Add lines 10 through 12 13a
b Earned income credit, additional child tax credit, and credits from Form 4136 and Form 8885 13b
c Total 2006 estimated tax. Subtract line 13b from line 13a. If zero or less, enter -0- 䊳 13c
14a Multiply line 13c by 90% (66 2⁄3 % for farmers and fishermen) 14a

b Enter the tax shown on your 2005 tax return (110% of that amount if you are not
a farmer or fisherman and the adjusted gross income shown on that return is
more than $150,000 or, if married filing separately for 2006, more than $75,000) 14b
c Required annual payment to avoid a penalty. Enter the smaller of line 14a or 14b 䊳 14c
Caution: Generally, if you do not prepay (through income tax withholding and estimated tax payments) at least the amount on
line 14c, you may owe a penalty for not paying enough estimated tax. To avoid a penalty, make sure your estimate on line 13c
is as accurate as possible. Even if you pay the required annual payment, you may still owe tax when you file your return. If you
prefer, you can pay the amount shown on line 13c. For details, see Pub. 505.
15 Income tax withheld and estimated to be withheld during 2006 (including income tax withholding on pensions,
annuities, certain deferred income, etc.) 15
16 Subtract line 15 from line 14c. (Note: If zero or less or line 13c minus line 15 is less than $1,000, stop here. You
are not required to make estimated tax payments.) 16
17 If the first payment you are required to make is due April 17, 2006, enter 1⁄4 of line 16 (minus any 2005
overpayment that you are applying to this installment) here, and on your estimated tax payment voucher(s) if
you are paying by check or money order. (Note: Household employers, see instructions below.) 17

Step 1. Figure your expected income tax (line
6 of the 2006 Estimated Tax Worksheet). Use
the 2006 Tax Rate Schedules found at the end
of this chapter or in the instructions to Form
1040-ES to figure your expected income tax.
You must use a special method to figure tax on
the income of a child under age 14 who has
more than $1,700 of investment income. See
Tax on Investment Income of Child Under 14 in
Publication 929, Tax Rules for Children and De-
pendents.
Tax on net capital gain. The regular in-
come tax rates for individuals do not apply to a
net capital gain. Instead, your net capital gain is
taxed at a lower maximum rate.
The term “net capital gain” means the
amount by which your net long-term capital gain
for the year is more than your net short-term
capital loss.
Qualified dividends. The maximum tax
rate for qualified dividends is 15% (generally,
5% for people whose other income is taxed at
the 10% or 15% rate).
Tax on capital gains and qualified
dividends. If you expect to have a net
capital gain or qualified dividends,
use Worksheet 2-6 at the end of this chapter to
figure your tax.
Step 2. Add your expected taxes (line 8 of the
2006 Estimated Tax Worksheet). Include on line
8 the sum of:
1. Your tax on line 6 of the worksheet,
2. Your expected alternative minimum tax
from Form 6251, Alternative Minimum

Chapter 2 Estimated Tax for 2006 Page 23

Page 24 of 67 of Publication 505
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Tax — Individuals, on line 7 of the work-
sheet,
3. Your expected additional taxes from Form
8814, Parents’ Election To Report Child’s
Interest and Dividends, and Form 4972,
Tax on Lump-Sum Distributions (line 44,
boxes a and b, of the 2005 Form 1040),
and
4. Any recapture of education credits.
Step 3. Subtract your expected credits (line 9
of the 2006 Estimated Tax Worksheet). If you
are using your 2005 return as a guide and filed
Form 1040, your total credits for 2005 were
shown on line 56. If you filed Form 1040A, your
total credits for 2005 were on line 35.
If your credits on line 9 of the worksheet are
more than your taxes on line 8, enter “-0-” on line
10 and go on to Step 4.
Step 4. Add your expected self-employment
tax (line 11 of the 2006 Estimated Tax Work-
sheet). You should have already figured your
self-employment tax (see Self-employed under
Expected Adjusted Gross Income, earlier in this
chapter).
Step 5. Add your expected other taxes (line 12
of the 2006 Estimated Tax Worksheet).
Other taxes include:
1. Taxes on early distributions from:
a. An IRA or other qualified plan,
b. An annuity, or
c. A modified endowment contract entered
into after June 20, 1988,
2. Advance earned income credit payments,
3. Household employment taxes (before sub-
tracting advance EIC payments made to
your employee(s)) if:
a. You will have federal income tax with-
held from wages, pensions, annuities,
gambling winnings, or other income, or
b. You would be required to make esti-
mated tax payments even if you did not
include household employment taxes
when figuring your estimated tax, and
4. Amounts written in on Form 1040, line 63.
Do not include tax on recapture of a federal
mortgage subsidy, tax on golden parachute pay-
ments, excise tax on insider stock compensation
from an expatriated corporation, social security
and Medicare tax on unreported tip income, or
uncollected employee social security and Medi-
care or RRTA tax on tips or group-term life
insurance.
If you filed a 2005 Form 1040A, your only
“other taxes” were any advance earned income
credit payments on line 37.
Step 6. Subtract your expected earned in-
come credit, additional child tax credit, Form
4136 fuel tax credit, and Form 8885 health cov-
erage tax credit (line 13b of the 2006 Estimated
Tax Worksheet). These are shown on the 2005
Form 1040, lines 66a, 68, and 70.
To figure your expected fuel tax credit, do not
include fuel tax for the first three quarters of the
year that you expect to have refunded to you.
Page 24 Chapter 2 Estimated Tax for 2006
The earned income credit is shown on the
2005 Form 1040A, line 41a. The additional child
tax credit is shown on the 2005 Form 1040A, line
42.
The result of steps 1 through 6 is your total
estimated tax for 2006 (line 13c of the 2006
Estimated Tax Worksheet).
Required Annual Payment —
Line 14c
You figure the total amount you must pay for
2006 through withholding and estimated tax
payments on lines 14a through 14c of the 2006
Estimated Tax Worksheet.
General rule. The total amount you must pay
is the smaller of:
1. 90% of your total expected tax for 2006, or
2. 100% of the total tax shown on your 2005
return. Your 2005 tax return must cover all
12 months.
Special rules. There are special rules for cer-
tain higher income taxpayers and for farmers
and fishermen.
Higher income taxpayers. If your adjusted
gross income (AGI) for 2005 was more than
$150,000 ($75,000 if your filing status for 2006 is
married filing a separate return), substitute
110% for 100% in (2) above. This rule does not
apply to farmers and fishermen.
For 2005, AGI is the amount shown on Form
1040, line 37; Form 1040A, line 21; and Form
1040EZ, line 4.
Farmers and fishermen. If at least
two-thirds of your gross income for 2005 or 2006
is from farming or fishing, your required annual
payment is the smaller of:
1. 662/3% (.6667) of your total tax for 2006, or
2. 100% of the total tax shown on your 2005
return. (Your 2005 tax return must cover all
12 months.)
For definitions of “gross income from farm-
ing” and “gross income from fishing,” see Farm-
ers and Fishermen, earlier, under Who Must
Pay Estimated Tax.
Total tax for 2005. Your 2005 total tax on
Form 1040 is the amount on line 63 reduced by
the total of the amounts on lines 59, 66a, and 68,
any credit from Form 4136 or Form 8885 in-
cluded on line 70, any recapture of a federal
mortgage subsidy, any tax on golden parachute
payments, excise tax on insider stock compen-
sation from an expatriated corporation, and any
uncollected social security, Medicare, or railroad
retirement tax included on line 63, and any tax
on excess contributions to IRAs, Archer MSAs,
Coverdell education savings accounts, and
health savings accounts and on excess accu-
mulations in qualified retirement plans from
Form 5329 included on line 60.
On Form 1040A, it is the amount on line 38
reduced by the amounts on lines 41a and 42. On
Form 1040EZ, it is the amount on line 10 re-
duced by the amount on line 8a.
Example. Jeremy Martin’s total tax on his
2005 return was $43,693, and his expected tax
for 2006 is $71,253. His 2005 AGI was
13:46 - 5-APR-2006
$180,000. Because Jeremy had more than
$150,000 of AGI in 2005, he figures his required
annual payment as follows. He determines that
90% of his expected tax for 2006 is $64,128 (.90
× $71,253). Next, he determines that 110% of
the tax shown on his 2005 return is $48,062
(1.10 x $43,693). Finally, he determines that his
required annual payment is $48,062, the smaller
of the two.
Total Estimated Tax Payments —
Line 16
Figure the total estimated tax you must pay for
2006 on lines 15 and 16 of the 2006 Estimated
Tax Worksheet. Subtract your expected with-
holding from your required annual payment. You
usually must pay this difference in four equal
installments. (See When To Pay Estimated Tax
and How To Figure Each Payment, later.)
If your total expected tax on line 13c, minus
your expected withholding on line 15, is less
than $1,000, you do not have to pay estimated
tax.
Withholding. Your expected withholding for
2006 includes the income tax you expect to be
withheld from all sources (wages, pensions and
annuities, etc.). It also includes excess social
security and railroad retirement tax you expect
to be withheld from your wages.
For this purpose, you will have excess social
security or tier 1 railroad retirement tax withhold-
ing for 2006 only if your wages from two or more
employers are more than $94,200.
When To Pay
Estimated Tax
For estimated tax purposes, the year is divided
into four payment periods. Each period has a
specific payment due date. If you do not pay
enough tax by the due date of each of the pay-
ment periods, you may be charged a penalty
even if you are due a refund when you file your
income tax return. The payment periods and
due dates for estimated tax payments are
shown below.
For the period: Due date:
Jan. 11
– March 31 . . . . . . . April 15
April 1 – May 31 . . . . . . . . . June 15
June 1 – August 31 . . . . . . . September 15
Sept. 1 – Dec. 31 . . . . . . . . January 15
next year2
1 If your tax year does not begin on January 1,
see Fiscal year taxpayers, later.
2 See January payment, later.
Saturday, Sunday, holiday rule. If the due
date for an estimated tax payment falls on a
Saturday, Sunday, or legal holiday, the payment
will be on time if you make it on the next busi-
ness day. For example, a payment due Monday,
January 15, 2007, will be on time if you make it
by Tuesday, January 16, 2007. January 15,
2007, is a legal holiday.
January payment. If you file your 2006 Form
1040 or Form 1040A by January 31, 2007, and
Page 25 of 67 of Publication 505
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pay the rest of the tax you owe, you do not need
to make the payment due on January 15, 2007.
A payment for the fourth payment period that
is made by January 16, 2007, is considered
made on January 15, 2007.
Example. Janet Adams does not pay any
estimated tax for 2006. She files her 2006 in-
come tax return and pays the balance due as
shown on her return on January 24, 2007.
Janet’s estimated tax for the fourth payment
period is considered to have been paid on time.
However, she may owe a penalty for not making
the first three estimated tax payments. Any pen-
alty for not making those payments will be fig-
ured up to January 24, 2007.
Fiscal year taxpayers. If your tax year does
not start on January 1, your payment due dates
are:
1. The 15th day of the 4th month of your
fiscal year,
2. The 15th day of the 6th month of your
fiscal year,
3. The 15th day of the 9th month of your
fiscal year, and
4. The 15th day of the 1st month after the
end of your fiscal year.
You do not have to make the last payment
listed above if you file your income tax return by
the last day of the first month after the end of
your fiscal year and pay all the tax you owe with
your return.
When To Start
You do not have to make estimated tax pay-
ments until you have income on which you will
owe the tax. If you have income subject to esti-
mated tax during the first payment period, you
must make your first payment by the due date
for the first payment period. You can pay all your
estimated tax at that time, or you can pay it in
installments. If you choose to pay in install-
ments, make your first payment by the due date
for the first payment period. Make your remain-
ing installment payments by the due dates for
the later periods.
No income subject to estimated tax during
first period. If you do not have income subject
to estimated tax until a later payment period, you
can make your first payment by the due date for
that period. You can pay your entire estimated
tax by the due date for that period or you can pay
it in installments by the due date for that period
and the due dates for the remaining periods.
Table 2-2 shows the dates for making install-
ment payments.
How much to pay to avoid penalty. To deter-
mine how much you should pay by each pay-
ment due date, see How To Figure Each
Payment, later.
Farmers and Fishermen
If at least two-thirds of your gross income for
2005 or 2006 is from farming or fishing, you
have only one payment due date for your 2006
estimated tax, January 15, 2007. The due dates
for the first three payment periods, discussed
13:46 - 5-APR-2006
earlier under When To Pay Estimated Tax, do estimated tax. Pay the unpaid balance of your
not apply to you. amended estimated tax by the next payment
A payment made by January 16, 2007, is due date after the change or in installments by
considered made on January 15, 2007. that date and the due dates for the remaining
If you file your 2006 Form 1040 by March 1, payment periods.
2007, and pay all the tax you owe, you do not
If you do not receive your income evenly
need to pay estimated tax.
throughout the year, your required estimated tax
Fiscal year farmers and fishermen. If you payments may not be the same for each period.
are a farmer or fisherman, but your tax year See Annualized Income Installment Method,
does not start on January 1, you can either: later.
• Pay all your estimated tax by the 15th day Amended estimated tax. If you
after the end of your tax year, or refigure your estimated tax during the
• File your return and pay all the tax you year, or if your first estimated tax pay-
owe by the 1st day of the 3rd month after ment is due after April 15, 2006, figure your
the end of your tax year. required payment for each remaining payment
period using Worksheet 2-7 at the end of this
chapter.
Table 2-2. Due Dates for
Estimated Tax Example. Early in 2006, Mira figures her
Installment Payments estimated tax due is $1,800. She makes esti-
mated tax payments on April 15 and June 15 of
If you first have $450 each ($1,800 ÷ 4).
income on which Make a Make later
you must pay payment installments On July 10, she sells investment property at
estimated tax: by:* by:* a gain. Her refigured estimated tax is $4,100.
Her required estimated tax payment for the third
Before April 1 April 15 June 15 payment period is $2,175, as shown in her
Sept. 15 filled-in Worksheet 2-7 on the next page.
Jan. 15 next
year If Mira’s estimated tax does not change
again, her required estimated tax payment for
April 1 – May 31 June 15 Sept. 15
the fourth payment period will be $1,025.
Jan. 15 next
year
Underpayment penalty. If your estimated
June 1 – Aug. 31 Sept. 15 Jan. 15 next tax payment for a previous period is less than
year one-fourth of your amended estimated tax, you
may be charged a penalty for underpayment of
After Aug. 31 Jan. 15 next (None)
estimated tax for that period when you file your
year
tax return. See chapter 4 for more information.
* See January payment and Saturday, Sunday,
holiday rule under When To Pay Estimated Tax,
earlier. Annualized Income
Installment Method
If you do not receive your income evenly
throughout the year (for example, your income
How To Figure from a repair shop you operate is much larger in
Each Payment the summer than it is during the rest of the year),
your required estimated tax payment for one or
more periods may be less than the amount fig-
After you have figured your estimated tax, figure
how much you must pay by the due date of each ured using the regular installment method.
payment period. You should pay enough by The annualized income installment method
each due date to avoid a penalty for that period. annualizes your tax at the end of each period
If you do not pay enough during any payment based on a reasonable estimate of your income,
period, you may be charged a penalty even if deductions, and other items relating to events
you are due a refund when you file your tax that occurred from the beginning of the tax year
return. The penalty is discussed in chapter 4. through the end of the period. To see whether
you can pay less for any period, complete the
Regular Installment Method blank 2006 Annualized Estimated Tax Work-
sheet (Worksheet 2-8) at the end of this chapter.
If your first estimated tax payment is due April
(Note. You must first complete the 2006 Esti-
15, 2006, you can figure your required payment
mated Tax Worksheet through line 16.) Use the
for each period by dividing your annual esti-
result you figure on line 28 to make your esti-
mated tax due (line 16 of the 2006 Estimated
mated tax payments and complete your pay-
Tax Worksheet) by 4. Use this method only if
your income is basically the same throughout ment vouchers.
the year. See Example 2, under Illustrated Examples,
for an illustration of the worksheet.
Household employers. Reduce your re-
quired payment for each period by the amount of Note. If you use the annualized income in-
advance EIC payments paid during the period. stallment method to figure your estimated tax
Change in estimated tax. After you make an payments, you must file Form 2210 with your
estimated tax payment, changes in your income, 2006 tax return. See Annualized Income Install-
adjustments, deductions, credits, or exemptions ment Method (Schedule AI) in chapter 4 for
may make it necessary for you to refigure your more information.
Chapter 2 Estimated Tax for 2006 Page 25
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Worksheet 2-7. Amended Estimated Tax Worksheet —Illustrated Line 12. Use the 2006 Tax Rate Schedules at
the end of this chapter or in the instructions to
Form 1040-ES to figure your annualized income
1. Amended total estimated tax due . . . . . . . . . . . . . . . . . . . . . . . 1. $4,100 tax. For the special method that must be used to
figure tax on the income of a child under 14 who
2. Multiply line 1 by:
has more than $1,700 investment income, see
.50 if next payment is due June 15, 2006
Tax on Investment Income of Child Under 14 in
.75 if next payment is due September 15, 2006
Publication 929.
1.00 if next payment is due January 15, 2007 . . . . . . . . . . . . . . 2. 3,075
Capital gains tax computation. The regu-
3. Estimated tax payments for all previous periods . . . . . . . . . . . . . . 3. 900 lar income tax rates for individuals do not apply
4. Next required payment: Subtract line 3 from line 2 and enter the to a net capital gain. Instead, your net capital
result (but not less than zero) here and on your payment voucher for gain is taxed at a lower maximum rate.
your next required payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. $2,175 The term “net capital gain” means the
amount by which your net long-term capital gain
Note. If the payment on line 4 is due January 15, 2007, stop here.
for the year is more than your net short-term
Otherwise, go to line 5.
capital loss.
5. Add lines 3 and 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. 3,075
Tax on capital gains and qualified
6. Subtract line 5 from line 1 and enter the result (but not less than dividends. If the amount on line 1
zero) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. 1,025 includes capital gains or qualified divi-
dends, use Worksheet 2-11 at the end of this
7. Each following required payment: If the payment on line 4 is due
June 15, 2006, enter one-half of the amount on line 6 here and on chapter to figure the amount to enter on line 12.
the payment vouchers for your payments due September 15, 2006,
Line 13. Enter your self-employment tax for
and January 15, 2007. If the amount on line 4 is due September 15,
2006, enter the full amount on line 6 here and on the payment the period from line 37.
voucher for your payment due January 15, 2007 . . . . . . . . . . . . . 7. $1,025
Line 14. Include all the taxes you will owe
(other than income tax and self-employment tax)
because of events that occurred during the pe-
Instructions for the 2006 Line 7. See the 2006 Standard Deduction Ta- riod.
Annualized Estimated Tax bles at the end of this chapter. Find your stan- If you filed a 2005 Form 1040, these include:
Worksheet (Worksheet 2-8) dard deduction in the appropriate table.
• Taxes on qualified plans, including IRAs,
Line 10. Multiply $3,300 by your total ex- and other tax favored accounts,
Use Figure 2-C on the next page to
TIP help you follow these instructions. An- pected exemptions, unless line 3 is more than • Advance earned income credit,
other worksheet is available for your the amount shown below for your filing status.
• Household employment taxes that are re-
use at the end of this chapter. Single . . . . . . . . . . . . . . . . . . . $150,500 ported on your income tax return, and
The purpose of this worksheet is to deter- Married filing jointly or
mine your estimated tax liability as your income qualifying widow(er) . . . . . . . . . $225,750 • Amounts written in on line 63 of Form
accumulates throughout the year, rather than Married filing separately . . . . . . . . $112,875 1040.
dividing your entire year’s estimated tax liability Head of household . . . . . . . . . . . $188,150
by four as if your income was earned equally Do not include tax on recapture of a federal
In that case, use Worksheet 2-10 at the end
throughout the year. The top of the worksheet mortgage subsidy, tax on golden parachute pay-
of this chapter to figure the amount to enter on
(see next page) shows the dates for each pay- ments, excise tax on insider stock compensation
line 10. However, if, in 2006, you housed individ- from an expatriated corporation, social security
ment period. The periods build; that is, each
uals displaced by Hurricane Katrina, read the and Medicare tax on unreported tip income, and
period includes all previous periods. After the
end of each payment period, complete the cor- following section and complete Worksheet 2-5 any uncollected social security, Medicare, or
responding worksheet column to figure the pay- before entering an amount on line 10 of your railroad retirement tax.
ment due for that period. 2006 Annualized Estimated Tax Worksheet. If you filed a 2005 Form 1040A, “other tax” is
Taxpayers housing individuals displaced any advance earned income credit payments on
Line 1. Enter your adjusted gross income for line 37 of that form.
by Hurricane Katrina. You may be able to
the period. This is your gross income, including
claim an additional exemption amount of $500
your share of partnership or S corporation in- Line 16. Include all the credits (other than
come or loss, for the period, minus your adjust- per person (up to $2,000) if you provided hous-
withholding credits) you can claim because of
ments to income for that period. (See Expected ing to a person who was displaced from his or
events that occurred during the period. If you are
Adjusted Gross Income — Line 1 under How To her main home because of Hurricane Katrina using your 2005 return as a guide and filed Form
Figure Estimated Tax, earlier.) and all of the following apply. 1040, your 2005 credits included the credits on
Self-employment income. If you had • The person displaced lived in your main lines 66a, 68, and 70 boxes b and c, and the
self-employment income, first complete Section home for at least 60 consecutive days. credits that are included in the total on line 56
B of this worksheet. Use the amounts on line 39 (lines 46 – 55). If you filed Form 1040A, your
• You did not receive any rent or other 2005 credits included the credits on lines 41a
when figuring the amount of adjusted gross in-
amount from any source for providing the and 42.
come to enter on line 1.
housing.
Line 25. If line 24 is smaller than line 21 and
Line 4. Be sure to consider all deduction limits • The main home of the person displaced you are not certain of the estimate of your 2006
figured on Schedule A, such as reducing your
was, on August 28, 2005, in the Hurricane tax, you can avoid a penalty by entering the
medical expenses by 7.5% of your AGI, or re-
Katrina disaster area. amount from line 21 on line 25.
ducing certain miscellaneous deductions by 2%
of your AGI. • The person displaced was not your
spouse or dependent. Line 27. Include all estimated tax payments
Line 6. Multiply line 4 by line 5 and enter the credited to 2006 and federal income tax with-
result on line 6, unless line 3 is more than • You did not claim the maximum exemption holding through the payment due date for the
$150,500 ($75,250 if married filing separately). amount of $2,000 in 2005. period. Also include excess social security and
In that case, use Worksheet 2-9 at the end of excess railroad retirement for the period.
this chapter to figure the amount to enter on line Use Worksheet 2-5 at the end of this chapter Your withholding is considered paid in four
6. Complete this worksheet for each period, as to compute the additional exemption amount. equal installments, one on the due date of each
necessary. For more information, see Publication 4492. payment period. To figure the amount to include

Page 26 Chapter 2 Estimated Tax for 2006

Page 27 of 67 of Publication 505 13:46 - 5-APR-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Figure 2-C. Worksheet for Annualized Income Installment Method

Worksheet 2-8. 2006 Annualized Estimated Tax Worksheet
Section A (For Figuring Your Annualized Estimated Tax Payments)—Complete each column after end of period shown.
Estates and trusts: Use the following ending dates shown in each (a) (b) (c) (d)
column—2/28, 4/30, 7/31, 11/30. 1/1/06–3/31/06 1/1/06–5/31/06 1/1/06–8/31/06 1/1/06–12/31/06

1 Adjusted gross income for each period. (Caution: See instructions.)

Self-employed: Complete Section B first 1
2 Annualization amounts 2 4 2.4 1.5 1
3 Annualized income. Multiply line 1 by line 2 3
4 Itemized deductions for period. If you do not expect to itemize, enter
-0- and skip to line 7 4
5 Annualization amounts 5 4 2.4 1.5 1
6 Multiply line 4 by line 5. (Caution: See instructions and Worksheet
2-9) 6
7 Standard deduction from 2006 tables 7
8 Enter the larger of line 6 or line 7 8
9 Subtract line 8 from line 3 9
10 Multiply $3,300 by your total expected exemptions. (Caution: See
instructions and Worksheet 2-10) 10
11 Subtract line 10 from line 9 11
12 Tax on the amount on line 11 from the 2006 Tax Rate Schedules.
(Caution: See instructions and Worksheet 2-11) 12
13 Self-employment tax from line 37 of Section B 13
14 Other taxes for each payment period 14
15 Total tax. Add lines 12, 13, and 14 15
16 Credits for each period 16
17 Subtract line 16 from line 15. (If less than zero, enter -0-) 17
18 Applicable percentage 18 22.5% 45% 67.5% 90%
19 Multiply line 17 by line 18 19
20 Add amounts on line 25 of all preceding columns 20
21 Annualized income installment. Subtract line 20 from line 19. (If less
than zero, enter -0-) 21
22 Divide line 14c of the Form 1040-ES Estimated Tax Worksheet by 4 22
23 Subtract line 25 of preceding column from line 24 of preceding
column 23
24 Add lines 22 and 23 24
25 Enter the smaller of line 21 or line 24. (Caution: See instructions) 25
26 Total required payments for the period. Add lines 20 and 25 26
27 Estimated tax payments made (line 28 of preceding columns) and tax
withholding through the due date for the period 27
28 Estimated tax payment required by the next due date. Subtract line
27 from line 26 and enter the result (but not less than zero) here and
on your payment voucher 28
Section B (For Figuring Your Annualized Estimated Self-Employment Tax)—Complete each column after end of period shown.
29 Net earnings from self-employment for the period 29
30 Prorated social security tax limit 30 $23,550 $39,250 $62,800 $94,200
31 Enter actual wages for the period subject to social security tax or the
6.2% portion of the 7.65% railroad retirement (tier 1) tax 31
32 Subtract line 31 from line 30. If zero or less, enter -0- 32
33 Annualization amounts 33 0.496 0.2976 0.186 0.124
34 Multiply line 33 by the smaller of line 29 or line 32 34
35 Annualization amounts 35 0.116 0.0696 0.0435 0.029
36 Multiply line 29 by line 35 36
37 Add lines 34 and 36. Enter the result here and on line 13 of Section A 37
38 Annualization amounts 38 8 4.8 3 2
39 Deduction for one-half of self-employment tax. Divide line 37 by line
38. Enter the result here. Also use this result to figure your adjusted
gross income on line 1 39

Chapter 2 Estimated Tax for 2006 Page 27

Page 28 of 67 of Publication 505
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on line 27 for each period, multiply your total
expected withholding for 2006 by:
• 25% (.25) for the first period,
• 50% (.50) for the second period,
• 75% (.75) for the third period, or
• 100% (1.00) for the fourth period.
However, you may choose to include your
actual withholding through the due date for each
period on line 27. You can make this choice
separately for the taxes withheld from your
wages and all other withholding. For an explana-
tion of what to include in withholding, see Total
Estimated Tax Payments — Line 16 under How
To Figure Estimated Tax, earlier.
Section B. If you had income from self-em-
ployment during any period, complete the work-
sheet column for that period to figure your
annualized self-employment tax before you
complete the worksheet column for that period
in Section A.
Nonresident aliens. If you will file Form
1040NR and you do not receive wages as an
employee subject to U.S. income tax withhold-
ing, the instructions for the worksheet are modi-
fied as follows.
1. Skip column (a).
2. On line 1, enter your income for the period
that is effectively connected with a U.S.
trade or business.
3. On line 17, increase your entry by the
amount determined by multiplying your in-
come for the period that is not effectively
connected with a U.S. trade or business by
the following.
a. 72% for column (b).
b. 45% for column (c).
c. 30% for column (d).
However, if you can use a treaty rate lower
than 30%, use the percentages determined
by multiplying your treaty rate by 2.4, 1.5, and
1, respectively.
4. On line 22, enter one-half of the amount
from line 16c of the Form 1040-ES(NR)
2006 Estimated Tax Worksheet in column
(b), and one-fourth in columns (c) and (d).
5. On lines 20 and 23, skip column (b).
6. On line 27, if you do not use the actual
withholding method, include one-third of
your total expected withholding in column
(b) and two-thirds in columns (c) and (d).
See Publication 519 for more information.
Estimated Tax
Payments Not Required
You do not have to pay estimated tax if your
withholding in each payment period is at least as
much as:
• One-fourth of your required annual pay-
ment, or
• Your required annualized income install-
ment for that period.
Page 28 Chapter 2 Estimated Tax for 2006
You also do not have to pay estimated tax if you
will pay enough through withholding to keep the
amount you will owe with your return under
$1,000.
How To Pay
Estimated Tax
There are five ways to pay estimated tax.
• By crediting an overpayment on your 2005
return to your 2006 estimated tax.
• By sending in your payment with a pay-
ment voucher from Form 1040-ES.
• By paying electronically using the Elec-
tronic Federal Tax Payment System
(EFTPS).
• By electronic funds withdrawal if you are
filing Form 1040 or Form 1040A electroni-
cally.
• By credit card using a pay-by-phone sys-
tem or the Internet.
Crediting an Overpayment
If you show an overpayment of tax on your Form
1040 or Form 1040A for 2005, you can apply
part or all of it to your estimated tax for 2006. On
line 74 of Form 1040, or line 46 of Form 1040A,
enter the amount you want credited to your esti-
mated tax rather than refunded. The amount you
have credited should be taken into account
when figuring your estimated tax payments.
If you are a beneficiary of an estate or trust,
and the trustee elects to credit 2006 trust pay-
ments of estimated tax to you, you can treat the
amount credited as paid by you on January 15,
2007.
The credit will be applied to your payments in
the order necessary to avoid the penalty for
underpayment of estimated tax. You cannot
have any of that amount refunded to you until
the close of that tax year. You also cannot use
that overpayment in any other way.
Example. When Kathleen finished filling out
her 2005 tax return, she saw that she had over-
paid her taxes by $750. Kathleen knew she
would owe additional tax in 2006. She credited
$600 of the overpayment to her 2006 estimated
tax and had the remaining $150 refunded to her.
In September, she amended her 2005 return
by filing Form 1040X, Amended U.S. Individual
Income Tax Return. It turned out that she owed
$250 more in tax than she had thought. This
reduced her 2005 overpayment from $750 to
$500. Because the $750 had already been ap-
plied to her 2006 estimated tax or refunded to
her, the IRS billed her for the additional $250
she owed, plus penalties and interest. Kathleen
could not use any of the $600 she had credited
to her 2006 estimated tax to pay this bill.
Using the
Payment Vouchers
Each payment of estimated tax must be accom-
panied by a payment voucher from Form
1040-ES. If you made estimated tax payments
13:46 - 5-APR-2006
last year, you should receive a copy of the 2006
Form 1040-ES in the mail. It will have payment
vouchers preprinted with your name, address,
and social security number. Using the preprinted
vouchers will speed processing, reduce the
chance of error, and help save processing costs.
If you previously made one or more pay-
ments electronically, you will receive Form
1040-ES (E), which does not include payment
vouchers. Instead please continue to make your
payments electronically. This helps ensure that
your account is properly and timely credited.
If you did not pay estimated tax last year, you
will have to get a copy of Form 1040-ES from the
IRS. See chapter 5. After you make your first
payment, a Form 1040-ES package with the
preprinted vouchers will be mailed to you. Fol-
low the instructions in the package to make sure
you use the vouchers correctly.
Use the window envelopes that came with
your Form 1040-ES package. If you use your
own envelopes, make sure you mail your pay-
ment vouchers to the address shown in the
Form 1040-ES instructions for the place where
you live.
Do not use the address shown in the
!
CAUTION
Form 1040 or Form 1040A instruc-
tions.
If you file a joint return and you are making
joint estimated tax payments, please enter the
names and social security numbers on the pay-
ment voucher in the same order as they will
appear on the joint return.
Change of address. You must notify the IRS
if you are making estimated tax payments and
you changed your address during the year. You
must send a clear and concise written statement
to the IRS Center where you filed your last return
and provide all of the following.
• Your full name (and your spouse’s full
name).
• Your signature (and spouse’s signature).
• Your old address (and spouse’s old ad-
dress if different).
• Your new address.
• Your social security number (and spouse’s
social security number).
You can use Form 8822, Change of Address, for
this purpose.
You can continue to use your old preprinted
payment vouchers until the IRS sends you new
ones. However, do not correct the address on
the old voucher.
Electronic Federal Tax
Payment System (EFTPS)
EFTPS is a free tax payment system that all
individuals and businesses can use. You can
make payments online or by phone.
Here are just a few of the benefits of this
easy-to-use system.
• Convenient and flexible. It is available 24
hours a day, 7 days a week, and you can
use it to schedule payments in advance.
For example, you can schedule estimated
tax payments weekly, monthly, or quar-
terly.
Page 29 of 67 of Publication 505 13:46 - 5-APR-2006

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• Fast and accurate. You can make a tax
payment in minutes. Because there are
verification steps along the way, you can
check and review your information before
sending it.
• Safe and secure. It offers the highest
available levels of security. Every transac-
tion receives an immediate confirmation.
For more information or details on enrolling,
visit www.EFTPS.gov or call EFTPS Customer
Service at 1-800-555-4477 (business accounts)
or 1-800-316-6541 (individual accounts). Call
1-800-733-4829 if you are a TTY/TDD user. Call
1-800-244-4829 for Spanish.
Payment by Electronic
Funds Withdrawal
You can make a 2006 estimated tax payment
when you electronically file your 2005 Form
1040 or Form 1040A by authorizing an elec-
tronic funds withdrawal from your checking or
savings account. Regardless of whether you
have a balance due on your electronically filed
tax return, you can schedule a one-time esti-
mated tax payment for April 15, 2006, June 15,
2006, or September 15, 2006. Do not send in a
Form 1040-ES payment voucher when you
schedule an estimated tax payment by elec-
tronic funds withdrawal.
Payment by Credit Card
You can use your American Express Card,
Discover Card, MasterCard card, or Visa
card to make estimated tax payments. Call or
access by Internet one of the service providers
listed below and follow the instructions of the
provider. Each provider will charge a conve-
nience fee based on the amount you are paying.
You can find out what the fee will be by calling
the provider’s toll-free automated customer
service number or visiting the provider’s web
site shown below.
Link2Gov Corporation
1-888-PAY-1040SM (1-888-729-1040)
1-888-658-5465 (Customer Service)
www.PAY1040.com
pect to receive the following income during
2006.
Larry’s salary . . . . . . . . . . . . . . . . .
Unemployment compensation . . . . . .
Anne’s net profit from self-employment
Net rental income . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . .
They also use the following expected items
to figure their estimated tax.
Adjustment to income for IRA
contributions . . . . . . . . . . . . . . . .
Itemized deductions . . . . . . . . . . . .
Deduction for exemptions ($3,300 × 2)
2005 total tax . . . . . . . . . . . . . . . . .
Withholding . . . . . . . . . . . . . . . . . .
The Joneses plan to file a joint return. They
use the 2006 Estimated Tax Worksheet in-
cluded in Form 1040-ES to figure their estimated
tax payments. Their filled-in worksheet follows
Example 2.
Expected adjusted gross income. Anne can
claim an income tax deduction for one-half of her
self-employment tax as a business expense. So
before the Joneses figure their expected ad-
justed gross income, they figure Anne’s ex-
pected self-employment tax. See their filled-in
Worksheet 2-2 below.
On line 11 of their 2006 Estimated Tax Work-
sheet, the Joneses enter $35,555 on the dotted
line and $5,440 in the blank. They subtract
one-half of that amount, $2,720, and their
$1,000 adjustment for IRA contributions from
their $82,016 total income to find their expected
adjusted gross income, $78,296. They enter that
amount on line 1 of the worksheet. See their
filled-in 2006 Estimated Tax Worksheet showing
the regular installment method, Figure 2-D, on
page 31.
Expected taxable income. The Joneses find
their standard deduction, $10,300, in the 2006
Standard Deduction Tables. This is smaller than
their expected itemized deductions, so they
enter $10,500 on line 2 of the worksheet. They
subtract the amount on line 2 from the amount
on line 1 and enter the result, $67,796, on line 3.
They enter their deduction for exemptions,
$6,600, on line 4. After subtracting this amount,
their expected taxable income on line 5 is
$34,200 $61,196.
600
38,500 Expected taxes and credits. The Joneses
2,671 use the 2006 Tax Rate Schedule Y-1 at the end
2,300 of this chapter to figure their expected income
3,745 tax, and enter $8,424 on line 6 of the worksheet.
$82,016 They do not expect to owe any other taxes that
would be entered on lines 7 or 12, or have any
credits that would be entered on lines 9 or 13b,
so they leave those lines blank.
The Joneses’ total expected tax on line 13c,
after adding Anne’s self-employment tax, is
$ 1,000 $13,864.
10,500
Estimated tax. The Joneses multiply their to-
6,600
tal expected tax by 90% and enter $12,478 on
15,220
5,792 line 14a of the worksheet. They enter their 2005
tax on line 14b. Their required annual payment
on line 14c is the smaller amount, $12,478.
They enter Larry’s expected withholding,
$5,792, on line 15 and subtract it from their
required annual payment. Their estimated tax
on line 16 is $6,686.
Required estimated tax payment. The
Joneses must pay their first estimated tax pay-
ment by April 17, 2006. They enter one-fourth of
their estimated tax, $1,672, on line 17 of the
worksheet and on their Form 1040-ES payment
voucher that shows “Due April 17, 2006.” They
mail the voucher with their payment to the ad-
dress shown for their area in the Form 1040-ES
instructions and record the payment on the Re-
cord of Estimated Tax Payments in the instruc-
tions.
If their estimated tax does not change during
the year, the Joneses also will pay $1,672 esti-
mated tax by June 15 and September 15, 2006,
and January 16, 2007.
Example 2—Annualized
Income Installment Method
The facts are the same as in Example 1, except
that the Joneses do not expect to receive their
income evenly throughout the year. Anne ex-
pects to receive the largest portion of her
self-employment income during the last few
months of the year, and the Joneses’ rental

Official Payments Corporation Worksheet 2-2. Expected Self-Employment Tax —Illustrated

1-800-2PAY-TAXSM (1-800-272-9829)
1-877-754-4413 (Customer Service)
www.officialpayments.com 1. Enter your expected income and profits subject to self-employment
tax* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. $38,500

See the Form 1040-ES instructions for more 2. Multiply line 1 by 92.35% (.9235) . . . . . . . . . . . . . . . . . . . . . . . 2. 35,555
information. 3. Multiply line 2 by 2.9% (.029) . . . . . . . . . . . . . . . . . . . . . . . . . 3. 1,031
4. Social security tax maximum income . . . . . . . . . . . . . . . . . . . . 4. $94,200
5. Enter your expected wages (if subject to social security tax) . . . . . 5. -0-
Illustrated Examples 6. Subtract line 5 from line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. 94,200
Note. If line 6 is zero or less, enter -0- on line 8 and skip to line 9.
The following examples show how to figure esti-
mated tax payments under the regular install- 7. Enter the smaller of line 2 or line 6 . . . . . . . . . . . . . . . . . . . . . . 7. 35,555
ment method and under the annualized income
8. Multiply line 7 by 12.4% (.124) . . . . . . . . . . . . . . . . . . . . . . . . 8. 4,409
installment method.
9. Add line 3 and line 8. Enter the result here and on line 11 of your
Example 1—Regular 2006 Estimated Tax Worksheet . . . . . . . . . . . . . . . . . . . . . . . . 9. $ 5,440
Installment Method 10. Multiply line 9 by .50. This is your expected deduction for one-half
of your self-employment tax. . . . . . . . . . . . . . . . . . . . . . . . . . . 10. $ 2,720
Early in 2006, Anne and Larry Jones figure their
*Your net profit from self-employment is found on line 31 of Schedule C or line 3 of Schedule C-EZ.
estimated tax payments for the year. They ex-

Chapter 2 Estimated Tax for 2006 Page 29

Page 30 of 67 of Publication 505
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income is from a vacation home rented only in
the summer months.
After completing their 2006 Estimated Tax
Worksheet, the Joneses decide to use the annu-
alized income installment method to see if they
can pay less than $1,672 estimated tax for one
or more payment periods. They complete the
2006 Annualized Estimated Tax Worksheet
(Worksheet 2-8) in this chapter. See their
filled-in worksheet (Figure 2-E) on page 32.
First Period
On April 1, 2006, the Joneses complete the first
column of the worksheet for the period January
1 through March 31. They had the following
income for the period.
Larry’s salary . . . . . . . . . . . . . . . . . $ 8,550
Unemployment compensation . . . . . . 600
Anne’s net profit from self-employment 3,000
Net rental income . . . . . . . . . . . . . . -0-
Interest income . . . . . . . . . . . . . . . 500
Dividends . . . . . . . . . . . . . . . . . . . 462
Total . . . . . . . . . . . . . . . . . . . . . . $13,112
They also take into account the following
items for the period.
Adjustment to income for IRA
contributions . . . . . . . . . . . . . . . . $ 150
Itemized deductions . . . . . . . . . . . . 1,200
Withholding . . . . . . . . . . . . . . . . . . 1,350
Annualized adjusted gross income. Before
the Joneses figure their adjusted gross income
for the period, they first figure Anne’s self-em-
ployment tax in Section B, and then her adjust-
ment to income for self-employment tax.
On line 29 of Section B, they enter $2,771,
which is Anne’s net profit from self-employment
for the period ($3,000 x .9235). The prorated
social security tax limit is preprinted on line 30.
She has no social security wages, so they enter
zero on line 31, and $23,550 on line 32. Anne’s
annualized social security tax on line 34 is
$1,374, ($2,771 × .496). Her annualized Medi-
care tax on line 36 is $321 ($2,771 × .116). Her
total annualized self-employment tax on line 37
Page 30 Chapter 2 Estimated Tax for 2006
13:46 - 5-APR-2006
is $1,695. They enter that amount on line 13 of income installment method is $0 ($1,362 −
Section A. $1,448 is less than zero). Therefore, they do not
The Joneses figure their adjustment to in- have to send in an estimated tax payment for the
come for Anne’s self-employment tax on lines first period.
38 and 39. That amount is $212 ($1,695 ÷ 8).
They subtract that amount and their $150 IRA
contributions from their $13,112 total income Second, Third, and Fourth Periods
and enter their adjusted gross income for the
period, $12,750, on line 1 of Section A. They After the end of each remaining payment period,
multiply that amount by 4 and enter their annual- the Joneses complete the column of the work-
ized adjusted gross income, $51,000, on line 3. sheet for that period (from the beginning of the
year through the end of that payment period) in
Annualized taxable income. The Joneses the same way they did for the first period. They
figure their annualized itemized deductions had the following income for each period.
($1,200 × 4) on lines 4 through 6 of Section A.
Because the result is smaller than their standard Second Third Fourth
deduction, they enter their $10,300 standard Period Period Period
deduction on line 8. After subtracting that Jan. 1- Jan. 1- Jan. 1-
amount and their $6,600 deduction for exemp- May 31 Aug. 31 Dec. 31
tions, the Joneses’ annualized taxable income Larry’s salary . . . . . . $17,100 $25,650 $34,200
on line 11 is $34,100. Unemployment
compensation . . . . 600 600 600
Annualized taxes and credits. The Joneses Anne’s net profit from
use the 2006 Tax Rate Schedule Y-1 at the end self-employment . . . 6,000 15,850 38,500
of this chapter to figure their annualized income Net rental income . . . 668 2,671 2,671
tax, $4,360, which they enter on line 12 of Sec- Interest income . . . . . 850 1,450 2,300
Dividends . . . . . . . . 674 1,708 3,745
tion A.
Total . . . . . . . . . . . $25,892 $47,929 $82,016
The Joneses have no other taxes or credits
for the period that would be entered on lines 14
or 16, so they leave those lines blank and enter They also take into account the following
$6,055 ($4,360 + $1,695) on lines 15 and 17. items for each period.
This is their annualized total tax.
Second Third Fourth
Period Period Period
Required estimated tax payment. The
Joneses’ annualized income installment on line Jan. 1- Jan. 1- Jan. 1-
21 of Section A is $1,362 ($6,055 × 22.5%). On May 31 Aug. 31 Dec. 31
lines 22 and 24 they enter $3,120, one-fourth of Adjustment to income
for IRA contributions $ 250 $ 400 $ 1,000
their $12,478 required annual payment (line 14c
Itemized deductions . . 2,700 6,400 10,500
of the 2006 Estimated Tax Worksheet). Be-
cause $1,362 is smaller, they enter that amount For the second period, as for the first, the
on lines 25 and 26. annualized income installment method allows
Larry’s total expected withholding for the the Joneses to pay less than their required pay-
year is $5,792. The Joneses can treat ment under the regular installment method of
one-fourth of that amount, $1,448, as paid on figuring estimated tax payments. They make up
April 15, or they can choose to use Larry’s actual the difference in the third and fourth periods
withholding for the period, $1,350. The Joneses when their income is higher.
enter $1,448 on line 27. Because the Joneses are using the annual-
On line 28, the Joneses’ required estimated ized income installment method, they will file
tax payment for the period under the annualized Form 2210 with their tax return for 2006.
Page 31 of 67 of Publication 505 13:46 - 5-APR-2006

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Figure 2-D. Illustrated Example 1—Regular Installment Method

2006 Estimated Tax Worksheet Keep for Your Records
1 78,296

其
1 Adjusted gross income you expect in 2006 (see instructions below)
2 ● If you plan to itemize deductions, enter the estimated total of your itemized deductions.
Caution: If line 1 above is over $150,500 ($75,250 if married filing separately), your deduction may be
reduced. See Pub. 505 for details. 2 10,500
● If you do not plan to itemize deductions, enter your standard deduction from page 1.
3 Subtract line 2 from line 1 3 67,796
4 Exemptions. Multiply $3,300 by the number of personal exemptions. Caution: See Pub. 505 to figure the
amount to enter if you provided housing in 2006 to a person displaced by Hurricane Katrina, or if line 1 above
is over: $225,750 if married filing jointly or qualifying widow(er); $188,150 if head of household; $150,500 if
single; or $112,875 if married filing separately 4 6,600
5 Subtract line 4 from line 3 5 61,196
6 Tax. Figure your tax on the amount on line 5 by using the 2006 Tax Rate Schedules on page 5. Caution: If
you have qualified dividends or a net capital gain, see Pub. 505 to figure the tax 6 8,424
7 Alternative minimum tax from Form 6251 7
8 Add lines 6 and 7. Also include any tax from Forms 4972 and 8814 and any recapture of education credits
(see instructions below) 8 8,424
9 Credits (see instructions below). Do not include any income tax withholding on this line 9
10 Subtract line 9 from line 8. If zero or less, enter -0- 10 8,424
11 Self-employment tax (see instructions below). Estimate of 2006 net earnings from self-employment
$ 35,555 ; if $94,200 or less, multiply the amount by 15.3%; if more than $94,200, multiply the
amount by 2.9%, add $11,680.80 to the result, and enter the total. Caution: If you also have wages subject to
social security tax, see Pub. 505 to figure the amount to enter 11 5,440
12 Other taxes (see instructions below) 12
13a Add lines 10 through 12 13a 13,864
b Earned income credit, additional child tax credit, and credits from Form 4136 and Form 8885 13b
c Total 2006 estimated tax. Subtract line 13b from line 13a. If zero or less, enter -0- 䊳 13c 13,864
14a Multiply line 13c by 90% (66 2⁄3 % for farmers and fishermen) 14a 12,478
b Enter the tax shown on your 2005 tax return (110% of that amount if you are not
a farmer or fisherman and the adjusted gross income shown on that return is
more than $150,000 or, if married filing separately for 2006, more than $75,000) 14b 15,220
c Required annual payment to avoid a penalty. Enter the smaller of line 14a or 14b 䊳 14c 12,478
Caution: Generally, if you do not prepay (through income tax withholding and estimated tax payments) at least the amount on
line 14c, you may owe a penalty for not paying enough estimated tax. To avoid a penalty, make sure your estimate on line 13c
is as accurate as possible. Even if you pay the required annual payment, you may still owe tax when you file your return. If you
prefer, you can pay the amount shown on line 13c. For details, see Pub. 505.
15 Income tax withheld and estimated to be withheld during 2006 (including income tax withholding on pensions,
annuities, certain deferred income, etc.) 15 5,792
16 Subtract line 15 from line 14c. (Note: If zero or less or line 13c minus line 15 is less than $1,000, stop here. You
are not required to make estimated tax payments.) 16 6,686
17 If the first payment you are required to make is due April 17, 2006, enter ⁄4 of line 16 (minus any 2005
1

overpayment that you are applying to this installment) here, and on your estimated tax payment voucher(s) if
you are paying by check or money order. (Note: Household employers, see instructions below.) 17 1,672

Chapter 2 Estimated Tax for 2006 Page 31

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Figure 2-E. Illustrated Example 2—Annualized Income Installment Method

Worksheet 2-8. 2006 Annualized Estimated Tax Worksheet
Note. For instructions, see Annualized Income Installment Method in chapter 2.
Section A (For Figuring Your Annualized Estimated Tax Payments)—Complete each column after end of period shown.
Estates and trusts: Use the following ending dates shown in each (a) (b) (c) (d)
column—2/28, 4/30, 7/31, 11/30. 1/1/06–3/31/06 1/1/06–5/31/06 1/1/06–8/31/06 1/1/06–12/31/06

1 Adjusted gross income for each period. (Caution: See instructions.)

Self-employed: Complete Section B first 1 12,750 25,218 46,409 78,296
2 Annualization amounts 2 4 2.4 1.5 1
3 Annualized income. Multiply line 1 by line 2 3 51,000 60,523 69,614 78,296
4 Itemized deductions for period. If you do not expect to itemize, enter
-0- and skip to line 7 4 1,200 2,700 6,400 10,500
5 Annualization amounts 5 4 2.4 1.5 1
6 Multiply line 4 by line 5. (Caution: See instructions and Worksheet
2-9) 6 4,800 6,480 9,600 10,500
7 Standard deduction from 2006 tables 7 10,300 10,300 10,300 10,300
8 Enter the larger of line 6 or line 7 8 10,300 10,300 10,300 10,500
9 Subtract line 8 from line 3 9 40,700 50,223 59,314 67,796
10 Multiply $3,300 by your total expected exemptions. (Caution: See
instructions and Worksheet 2-10) 10 6,600 6,600 6,600 6,600
11 Subtract line 10 from line 9 11 34,100 43,623 52,714 61,196
12 Tax on the amount on line 11 from the 2006 Tax Rate Schedules
(Caution: See instructions and Worksheet 2-11) 12 4,360 5,788 7,152 8,424
13 Self-employment tax from line 37 of Section B 13 1,695 2,035 3,359 5,440
14 Other taxes for each payment period 14
15 Total tax. Add lines 12, 13, and 14 15 6,055 7,823 10,511 13,864
16 Credits for each period 16
17 Subtract line 16 from line 15. (If less than zero, enter -0-) 17 6,055 7,823 10,511 13,864
18 Applicable percentage 18 22.5% 45% 67.5% 90%
19 Multiply line 17 by line 18 19 1,362 3,520 7,095 12,478
20 Add amounts on line 25 of all preceding columns 20 1,362 3,520 7,095
21 Annualized income installment. Subtract line 20 from line 19. (If less
than zero, enter -0-) 21 1,362 2,158 3,575 5,383
22 Divide line 14c of the Form 1040-ES Estimated Tax Worksheet by 4 22 3,120 3,120 3,120 3,120
23 Subtract line 25 of preceding column from line 24 of preceding
column 23 1,758 2,720 2,265
24 Add lines 22 and 23 24 3,120 4,878 5,840 5,385
25 Enter the smaller of line 21 or line 24. (Caution: See instructions) 25 1,362 2,158 3,575 5,383
26 Total required payments for the period. Add lines 20 and 25 26 1,362 3,520 7,095 12,478
27 Estimated tax payments made (line 28 of preceding columns) and tax
withholding through the due date for the period 27 1,448 2,896 4,968 8,543
28 Estimated tax payment required by the next due date. Subtract line
27 from line 26 and enter the result (but not less than zero) here and
on your payment voucher 28 -0- 624 2,127 3,935
Section B (For Figuring Your Annualized Estimated Self-Employment Tax)—Complete each column after end of period shown.
29 Net earnings from self-employment for the period 29 2,771 5,541 14,637 35,555
30 Prorated social security tax limit 30 $23,550 $39,250 $62,800 $94,200
31 Enter actual wages for the period subject to social security tax or the
6.2% portion of the 7.65% railroad retirement (tier 1) tax 31 0 0 0 0
32 Subtract line 31 from line 30. If zero or less, enter -0- 32 23,550 39,250 62,800 94,200
33 Annualization amounts 33 0.496 0.2976 0.186 0.124
34 Multiply line 33 by the smaller of line 29 or line 32 34 1,374 1,649 2,722 4,409
35 Annualization amounts 35 0.116 0.0696 0.0435 0.029
36 Multiply line 29 by line 35 36 321 386 637 1,031
37 Add lines 34 and 36. Enter the result here and on line 13 of Section A 37 1,695 2,035 3,359 5,440
38 Annualization amounts 38 8 4.8 3 2
39 Deduction for one-half of self-employment tax. Divide line 37 by line
38. Enter the result here. Also use this result to figure your adjusted
gross income on line 1 39 212 424 1,120 2,720

Page 32 Chapter 2 Estimated Tax for 2006

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Worksheets for Chapter 2

Page 4 of the Instructions for 2006 Form 1040-ES

The 2006 Estimated Tax Worksheet is found on page 4 of the instructions for Form 1040-ES. When this
worksheet refers you to instructions (for example, “see instructions below”) or to specific page numbers, you can
find the information on pages 1-7 of the instructions for 2006 Form 1040-ES.
CAUTION

2006 Estimated Tax Worksheet Keep for Your Records

1

其
1 Adjusted gross income you expect in 2006 (see instructions below)
2 ● If you plan to itemize deductions, enter the estimated total of your itemized deductions.
Caution: If line 1 above is over $150,500 ($75,250 if married filing separately), your deduction may be
reduced. See Pub. 505 for details. 2
● If you do not plan to itemize deductions, enter your standard deduction from page 1.
3 Subtract line 2 from line 1 3
4 Exemptions. Multiply $3,300 by the number of personal exemptions. Caution: See Pub. 505 to figure the
amount to enter if you provided housing in 2006 to a person displaced by Hurricane Katrina, or if line 1 above
is over: $225,750 if married filing jointly or qualifying widow(er); $188,150 if head of household; $150,500 if
single; or $112,875 if married filing separately 4
5 Subtract line 4 from line 3 5
6 Tax. Figure your tax on the amount on line 5 by using the 2006 Tax Rate Schedules on page 5. Caution: If
you have qualified dividends or a net capital gain, see Pub. 505 to figure the tax 6
7 Alternative minimum tax from Form 6251 7
8 Add lines 6 and 7. Also include any tax from Forms 4972 and 8814 and any recapture of education credits
(see instructions below) 8
9 Credits (see instructions below). Do not include any income tax withholding on this line 9
10 Subtract line 9 from line 8. If zero or less, enter -0- 10
11 Self-employment tax (see instructions below). Estimate of 2006 net earnings from self-employment
$ ; if $94,200 or less, multiply the amount by 15.3%; if more than $94,200, multiply the
amount by 2.9%, add $11,680.80 to the result, and enter the total. Caution: If you also have wages subject to
social security tax, see Pub. 505 to figure the amount to enter 11
12 Other taxes (see instructions below) 12
13a Add lines 10 through 12 13a
b Earned income credit, additional child tax credit, and credits from Form 4136 and Form 8885 13b
c Total 2006 estimated tax. Subtract line 13b from line 13a. If zero or less, enter -0- 䊳 13c
14a Multiply line 13c by 90% (66 2⁄3 % for farmers and fishermen) 14a

b Enter the tax shown on your 2005 tax return (110% of that amount if you are not
a farmer or fisherman and the adjusted gross income shown on that return is
more than $150,000 or, if married filing separately for 2006, more than $75,000) 14b
c Required annual payment to avoid a penalty. Enter the smaller of line 14a or 14b 䊳 14c
Caution: Generally, if you do not prepay (through income tax withholding and estimated tax payments) at least the amount on
line 14c, you may owe a penalty for not paying enough estimated tax. To avoid a penalty, make sure your estimate on line 13c
is as accurate as possible. Even if you pay the required annual payment, you may still owe tax when you file your return. If you
prefer, you can pay the amount shown on line 13c. For details, see Pub. 505.
15 Income tax withheld and estimated to be withheld during 2006 (including income tax withholding on pensions,
annuities, certain deferred income, etc.) 15
16 Subtract line 15 from line 14c. (Note: If zero or less or line 13c minus line 15 is less than $1,000, stop here. You
are not required to make estimated tax payments.) 16
17 If the first payment you are required to make is due April 17, 2006, enter 1⁄4 of line 16 (minus any 2005
overpayment that you are applying to this installment) here, and on your estimated tax payment voucher(s) if
you are paying by check or money order. (Note: Household employers, see instructions below.) 17

Chapter 2 Estimated Tax for 2006 Page 33

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Worksheet 2-1. 2006 Estimated Tax Worksheet —Line 1

Expected Taxable Social Security and Railroad Retirement Benefits

1. Enter your expected social security and railroad retirement benefits . . . . . . . . . . . . . . . . . . . . . . 1.

2. Enter one-half of line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Enter your expected total income. Do not include any social security and railroad retirement
benefits, nontaxable interest income, nontaxable IRA distributions, or nontaxable pension
distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Enter your expected nontaxable interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Add lines 2, 3, and 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Enter your expected adjustments to income except any student loan interest deduction and any
tuition and fees deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Enter $25,000 ($32,000 if you expect to file married filing a joint return; $0 if you expect to file
married filing a separate return and expect to live with your spouse at any time during the year) . . 8.
9. Subtract line 8 from line 7. If zero or less, stop here. Do not include any social security or railroad
retirement benefits on line 1 of your 2006 Estimated Tax Worksheet . . . . . . . . . . . . . . . . . . . . . 9.
10. Enter $9,000 ($12,000 if you expect to file married filing a joint return; $0 if you expect to file
married filing a separate return and expect to live with your spouse at any time during the year) . . 10.
11. Subtract line 10 from line 9. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
12. Enter the smaller of line 9 or line 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
13. Enter one-half of line 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
14. Enter the smaller of line 2 or line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
15. Multiply line 11 by 85% (.85). If line 11 is zero, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
16. Add lines 14 and 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
17. Multiply line 1 by 85% (.85) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
18. Enter the smaller of line 16 or line 17. This is the amount of your expected taxable social security
and railroad retirement benefits. Include this amount in the total on line 1 of your 2006 Estimated
Tax Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.

Worksheet 2-2. 2006 Estimated Tax Worksheet —Line 1

Expected Self-Employment Tax and Deduction

1. Enter your expected income and profits subject to self-employment tax* . . . . . . . . . . . . . . . . . . 1.

2. Multiply line 1 by 92.35% (.9235) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Multiply line 2 by 2.9% (.029) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Social security tax maximum income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. $94,200
5. Enter your expected wages (if subject to social security tax) . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Subtract line 5 from line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
Note. If line 6 is zero or less, enter -0- on line 8 and skip to line 9.
7. Enter the smaller of line 2 or line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Multiply line 7 by 12.4% (.124) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Add line 3 and line 8. Enter the result here and on line 11 of your 2006 Estimated Tax Worksheet 9.
10. Multiply line 9 by .50. This is your expected deduction for one-half of your self-employment tax. . . 10.
*Your net profit from self-employment is found on line 31 of Schedule C or line 3 of Schedule C-EZ.

Page 34 Chapter 2 Estimated Tax for 2006

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Worksheet 2-3. 2006 Estimated Tax Worksheet —Line 2

Phaseout of Itemized Deductions

1. Enter the estimated total of your itemized deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

2. Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty or
theft losses, and gambling losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
Note. If line 3 is zero, stop here and enter line 1 of this worksheet on line 2 of the 2006 Estimated Tax
Worksheet.
4. Multiply line 3 by 80% (.80) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Enter the amount from line 1 of the 2006 Estimated Tax Worksheet . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Enter $150,500 ($75,250 if married filing separately) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Subtract line 6 from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Multiply line 7 by 3% (.03) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Enter the smaller of line 4 or line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Divide line 9 by 3.0. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Subtract line 10 from line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
12. Subtract line 11 from line 1. Enter the result here and on line 2 of your 2006 Estimated Tax Worksheet 12.

Worksheet 2-4. 2006 Estimated Tax Worksheet —Line 4

Reduction of Exemption Amount

1. Multiply $3,300 by the number of exemptions you plan to claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

2. Enter the amount from line 1 of your 2006 Estimated Tax Worksheet . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Enter:
$150,500 if single
$225,750 if married filing jointly or qualifying widow(er)
$112,875 if married filing separately
$188,150 if head of household . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Subtract line 3 from line 2 and enter here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Is line 4 more than $122,500 (more than $61,250 if married filing separately)?
Yes. Multiply $1,100 by the number of exemptions you plan to claim and enter the result here and
on line 4 of your 2006 Estimated Tax Worksheet. Do not complete the rest of this worksheet.
No. Divide line 4 by $2,500 ($1,250 if married filing separately). If the result is not a whole number,
increase it to the next whole number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Multiply line 5 by 2% (.02). Enter the result as a decimal, but not more than 1.0 . . . . . . . . . . . . . . . . . 6. .
7. Multiply line 1 by the decimal on line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Divide line 7 by 1.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Subtract line 8 from line 1. Enter the result here and on line 4 of your 2006 Estimated Tax Worksheet . . 9.

Worksheet 2-5. 2006 Estimated Tax Worksheet —Line 4

Additional Exemption Amount for Taxpayers Housing Individuals Displaced
by Hurricane Katrina

1. Maximum additional exemption amount. Enter $2,000 ($1,000 if married filing separately) . . . . . . . . . . . 1.
2. Did you file Form 8914 in 2005?
Yes. Enter the additional exemption amount claimed in 2005 from Form 8914, line 2.
No. Enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Subtract line 2 from line 1. This is the maximum additional exemption amount you can claim in 2006 . . . . 3.
4. Multiply $500 by the total number of displaced individuals that you housed. Do not enter more than the
amount shown on line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Enter the previously computed exemption amount (see Exemptions — line 4 or Worksheet 2-4, line 9) . . . 5.
6. Add lines 4 and 5. Enter the result here and on line 4 of your 2006 Estimated Tax Worksheet . . . . . . . . . 6.

Chapter 2 Estimated Tax for 2006 Page 35

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Worksheet 2-6. 2006 Estimated Tax Worksheet —Line 6

Qualified Dividends and Capital Gains Tax Worksheet

1. Enter the amount from line 5 of your 2006 Estimated Tax Worksheet . . . . . . . . . . . . . . . . . . . . . 1.
2. Enter your expected qualified dividends for 20061 .................................. 2.
3. Enter the net capital gain expected for 20061 ..................................... 3.
4. Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Enter your 28% rate gain or loss expected for 20062 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Enter the unrecaptured section 1250 gain expected for 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Enter the smaller of line 3 or line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Subtract line 8 from line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Subtract line 9 from line 1. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Enter the smaller of line 1 or $61,300 ($30,650 if single or married filing separately or $41,050 if
head of household) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
12. Enter the smaller of line 10 or line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
13. Subtract line 4 from line 1. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
14. Enter the larger of line 12 or line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
Note. If line 11 and line 12 are the same, skip lines 15 and 16 and go to line 17.
15. Subtract line 12 from line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
16. Multiply line 15 by 5% (.05) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
Note. If lines 1 and 11 are the same, skip lines 17 – 23 and go to line 24.
17. Enter the smaller of line 1 or line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
18. Subtract line 15 from line 17. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.
19. Multiply line 18 by 15% (.15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.
Note. If line 6 is zero or blank, skip lines 20 – 24 and go to line 25.
20. Enter the smaller of line 3 or line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.
21. Add lines 4 and 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.
22. Subtract line 1 from line 21. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.
23. Subtract line 22 from line 20. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.
24. Multiply line 23 by 25% (.25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.
Note. If line 5 is zero or blank, skip lines 25 – 27 and go to line 28.
25. Add lines 14, 15, 18, and 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.
26. Subtract line 25 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.
27. Multiply line 26 by 28% (.28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.
28. Tax on line 14 from the 2006 Tax Rate Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.
29. Add lines 16, 19, 24, 27, and 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.
30. Tax on line 1 from the 2006 Tax Rate Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.
31. Tax. Enter the smaller of line 29 or line 30 here and on line 6 of the 2006 Estimated Tax
Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.
1 If you expect to deduct investment interest expense, do not include on this line any qualified dividends or net capital gain that you will elect to treat as
investment income.
2 This includes a section 1202 exclusion from eligible gain on qualified small business stock and gain or loss from the sale or exchange of collectibles. See the

instructions for Schedule D (Form 1040) for more information.

Page 36 Chapter 2 Estimated Tax for 2006

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Worksheet 2-7. Amended Estimated Tax Worksheet

1. Amended total estimated tax due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

2. Multiply line 1 by:
.50 if next payment is due June 15, 2006
.75 if next payment is due September 15, 2006
1.00 if next payment is due January 15, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Estimated tax payments for all previous periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Next required payment: Subtract line 3 from line 2 and enter the result (but not less than zero)
here and on your payment voucher for your next required payment . . . . . . . . . . . . . . . . . . . . . . 4.
Note. If the payment on line 4 is due January 15, 2007, stop here. Otherwise, go to line 5.
5. Add lines 3 and 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Subtract line 5 from line 1 and enter the result (but not less than zero) . . . . . . . . . . . . . . . . . . . . 6.
7. Each following required payment: If the payment on line 4 is due June 15, 2006, enter one-half
of the amount on line 6 here and on the payment vouchers for your payments due September 15,
2006, and January 15, 2007. If the amount on line 4 is due September 15, 2006, enter the full
amount on line 6 here and on the payment voucher for your payment due January 15, 2007 . . . . . 7.

2006 Tax Rate Schedules

Caution. Do not use Tax Rate Schedules to figure your 2005 taxes. Use only to figure your 2006 estimated taxes.

Single—Schedule X Married filing separately—Schedule Y-2

If line 5 is: The tax is: of the If line 5 is: The tax is: of the
But not amount But not amount
Over — over — over — Over — over — over —

$0 $7,550 - - - - - - 10% $0 $0 $7,550 - - - - - - - 10% $0

7,550 30,650 $755.00 + 15% 7,550 7,550 30,650 $755.00 + 15% 7,550
30,650 74,200 4,220.00 + 25% 30,650 30,650 61,850 4,220.00 + 25% 30,650
74,200 154,800 15,107.50 + 28% 74,200 61,850 94,225 12,020.00 + 28% 61,850
154,800 336,550 37,675.50 + 33% 154,800 94,225 168,275 21,085.00 + 33% 94,225
336,550 ------ 97,653.00 + 35% 336,550 168,275 ------ 45,521.50 + 35% 168,275

Married filing jointly or Qualifying Head of household—Schedule Z

widow(er)—Schedule Y-1
If line 5 is: The tax is: of the If line 5 is: The tax is: of the
But not amount But not amount
Over — over — over — Over — over — over —

$0 $15,100 - - - - - - - - 10% $0 $0 $10,750 - - - - - - - - 10% $0

15,100 61,300 $1,510.00 + 15% 15,100 10,750 41,050 $1,075.00 + 15% 10,750
61,300 123,700 8,440.00 + 25% 61,300 41,050 106,000 5,620.00 + 25% 41,050
123,700 188,450 24,040.00 + 28% 123,700 106,000 171,650 21,857.50 + 28% 106,000
188,450 336,550 42,170.00 + 33% 188,450 171,650 336,550 40,239.50 + 33% 171,650
336,550 ------- 91,043.00 + 35% 336,550 336,550 ------- 94,656.50 + 35% 336,550

Chapter 2 Estimated Tax for 2006 Page 37

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Worksheet 2-8. 2006 Annualized Estimated Tax Worksheet

Note. For instructions, see Annualized Income Installment Method in chapter 2.

Section A (For Figuring Your Annualized Estimated Tax Payments) — Complete each column after end of period shown.

Estates and trusts: Use the following ending dates in (a) (b) (c) (d)
each column — 2/28, 4/30, 7/31, 11/30. 1/1/06 to 1/1/06 to 1/1/06 to 1/1/06 to
3/31/06 5/31/06 8/31/06 12/31/06

1 Adjusted gross income for each period. (Caution: See

instructions.) Self-employed: Complete Section B first. 1

2 Annualization amounts. 2 4 2.4 1.5 1

3 Annualized income. Multiply line 1 by line 2. 3

4 Itemized deductions for period. If you do not expect to itemize,

enter -0- and skip to line 7. 4

5 Annualization amounts. 5 4 2.4 1.5 1

6 Multiply line 4 by line 5. (Caution: See instructions and

Worksheet 2-9.) 6

7 Standard deduction from 2006 tables. 7

8 Enter the larger of line 6 or line 7. 8

9 Subtract line 8 from line 3. 9

10 Multiply $3,300 by your total expected exemptions. (Caution:

See instructions and Worksheet 2-10.) 10

11 Subtract line 10 from line 9. 11

12 Tax on the amount on line 11 from the 2006 Tax Rate

Schedules. (Caution: See instructions and Worksheet 2-11.) 12

13 Self-employment tax from line 37 of Section B. 13

14 Other taxes for each payment period. 14

15 Total tax. Add lines 12, 13, and 14. 15

16 Credits for each period. 16

17 Subtract line 16 from line 15. (If less than zero, enter -0-.) 17

18 Applicable percentage. 18 22.5% 45% 67.5% 90%

19 Multiply line 17 by line 18. 19

20 Add amounts on line 25 of all preceding columns. 20

21 Annualized income installment. Subtract line 20 from line 19. (If

less than zero, enter -0-.) 21

22 Divide line 14c of the Form 1040-ES Estimated Tax Worksheet

by 4. 22

23 Subtract line 25 of preceding column from line 24 of preceding

column. 23

24 Add lines 22 and 23. 24

25 Enter the smaller of line 21 or line 24. (Caution: See

instructions.) 25

26 Total required payments for the period. Add lines 20 and 25. 26

27 Estimated tax payments made (line 28 of preceding columns)

and tax withholding through the due date for the period. 27

28 Estimated tax payment required by the next due date. Subtract

line 27 from line 26 and enter the result (but not less than zero)
here and on your payment voucher. 28

Page 38 Chapter 2 Estimated Tax for 2006

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Worksheet 2-8. 2006 Annualized Estimated Worksheet (Continued)

Section B (For Figuring Your Annualized Estimated Self-Employment Tax) — Complete each column after end of period shown.

(a) (b) (c) (d)

1/1/06 to 1/1/06 to 1/1/06 to 1/1/06 to
3/31/06 5/31/06 8/31/06 12/31/06
29 Net earnings from self-employment for the period. 29

30 Prorated social security tax limit. 30 $23,550 $39,250 $62,800 $94,200

31 Enter actual wages for the period subject to social security tax
or the 6.2% portion of the 7.65% railroad retirement (tier 1) tax. 31

32 Subtract line 31 from line 30. If zero or less, enter -0-. 32

33 Annualization amounts. 33 0.496 0.2976 0.186 0.124

34 Multiply line 33 by the smaller of line 29 or line 32. 34

35 Annualization amounts. 35 0.116 0.0696 0.0435 0.029

36 Multiply line 29 by line 35. 36

37 Add lines 34 and 36. Enter the result here and on line 13 of
Section A. 37

38 Annualization amounts. 38 8 4.8 3 2

39 Deduction for one-half of self-employment tax. Divide line 37 by

line 38. Enter the result here. Also use this result to figure your
adjusted gross income on line 1. 39

Chapter 2 Estimated Tax for 2006 Page 39

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Worksheet 2-9. 2006 Annualized Estimated Tax Worksheet —Line 6

Phaseout of Itemized Deductions

1. Enter line 4 of Section A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

2. Enter the amount included in line 1 for medical and dental expenses, investment interest, casualty
or theft losses, and gambling losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Enter line 5 of Section A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Multiply line 1 by line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
Note. If line 3 is zero, stop here and enter line 5 on line 6 of Section A.
6. Multiply line 3 by line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Multiply line 6 by 80% (.80) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Enter line 3 of Section A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Enter $150,500 ($75,250 if married filing separately) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Subtract line 9 from line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Multiply line 10 by 3% (.03) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
12. Enter the smaller of line 7 or line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
13. Divide line 12 by 3.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
14. Subtract line 13 from line 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
15. Subtract line 14 from line 5. Enter the result here and on line 6 of Section A . . . . . . . . . . . . . . . . 15.

Worksheet 2-10. 2006 Annualized Estimated Tax Worksheet —Line 10

Reduction of Exemption Amount

1. Multiply $3,300 by the number of exemptions you plan to claim . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

2. Enter line 3 of Section A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Enter the amount shown below for your filing status
Single — $150,500
Married filing jointly or qualifying widow(er) — $225,750
Married filing separately — $112,875
Head of household — $188,150 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Subtract line 3 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Is line 4 more than $122,500 (more than $61,250 if married filing separately)? . . . . . . . . . . . . . . .
Yes. Multiply $1,100 by the number of exemptions you plan to claim and enter the result here
and on line 10 of Section A. Do not complete the rest of this worksheet.
No. Divide line 4 by $2,500 ($1,250 if married filing separately). If the result is not a whole
number, increase it to the next whole number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Multiply line 5 by 2% (.02). Enter the result as a decimal, but not more than 1.0 . . . . . . . . . . . . . . . 6. .
7. Multiply line 1 by the decimal on line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Divide line 7 by 1.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Subtract line 8 from line 1. Enter the result here and on line 10 of Section A . . . . . . . . . . . . . . . . . 9.

Page 40 Chapter 2 Estimated Tax for 2006

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Worksheet 2-11. 2006 Annualized Estimated Tax Worksheet —Line 12

Qualified Dividends and Capital Gains Tax Worksheet

1. Enter line 11 of your 2006 Annualized Estimated Tax Worksheet . . . . . . . . . . . . . . . . . . . . . . . 1.

2. Enter your expected qualified dividends for 20061 ................................. 2.
3. Enter the net capital gain expected for 20061 .................................... 3.
4. Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Enter your 28% rate gain or loss expected for 20062 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Enter the unrecaptured section 1250 gain expected for 2006 . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Enter the smaller of line 3 or line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Subtract line 8 from line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Subtract line 9 from line 1. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Enter the smaller of line 1 or $61,300 ($30,650 if single or married filing separately or $41,050 if
head of household) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
12. Enter the smaller of line 10 or line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
13. Subtract line 4 from line 1. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
14. Enter the larger of line 12 or line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
Note. If line 11 and line 12 are the same, skip lines 15 and 16 and go to line 17.
15. Subtract line 12 from line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
16. Multiply line 15 by 5% (.05) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
Note. If lines 1 and 11 are the same, skip lines 17 – 23 and go to line 24.
17. Enter the smaller of line 1 or line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
18. Subtract line 15 from line 17. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.
19. Multiply line 18 by 15% (.15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.
Note. If line 6 is zero or blank, skip lines 20 – 24 and go to line 25.
20. Enter the smaller of line 3 or line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.
21. Add lines 4 and 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.
22. Subtract line 1 from line 21. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.
23. Subtract line 22 from line 20. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.
24. Multiply line 23 by 25% (.25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.
Note. If line 5 is zero or blank, skip lines 25 – 27 and go to line 28.
25. Add lines 14, 15, 18, and 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.
26. Subtract line 25 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.
27. Multiply line 26 by 28% (.28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.
28. Tax on line 14 from the 2006 Tax Rate Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.
29. Add lines 16, 19, 24, 27, and 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.
30. Tax on line 1 from the 2006 Tax Rate Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.
31. Tax. Enter the smaller of line 29 or line 30 here and on line 12 of the 2006 Annualized Estimated
Tax Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.
1 If you expect to deduct investment interest expense, do not include on this line any qualified dividends or net capital gain that you will elect to treat as
investment income.
2 This includes a section 1202 exclusion from eligible gain on qualified small business stock and gain or loss from the sale or exchange of collectibles. See the
instructions for Schedule D (Form 1040) for more information.

Chapter 2 Estimated Tax for 2006 Page 41

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2006 Standard Deduction Tables
If you are married filling a separate return and your spouse
!
CAUTION
itemizes deductions, or if you are a dual-status alien, you
cannot take the standard deduction even if you were born
before January 2, 1942, or you are blind.
Table 2-3. Standard Deduction Chart for Most
People*
Table 2-5. Standard Deduction Worksheet for
Dependents
Use this worksheet only if someone else can
claim an exemption for you (or your spouse if
married filing jointly).
If you were born before January 2, 1942, or you are blind,
check the correct number of boxes below. Then go to the
worksheet.

THEN your Born before

You
standard January 2, 1942 Blind
IF your filing status is... deduction is...
Single or Married filing separately $ 5,150 Your spouse, if claiming Born before
Married filing jointly or Qualifying spouse’s exemption January 2, 1942 Blind
widow(er) with dependent child 10,300
Head of household 7,550
Total number of boxes you checked
* Do not use this chart if you were born before January 2, 1942, or you are blind,
or if someone else can claim an exemption for you (or your spouse if married 1. Enter your earned income (defined
filing jointly). Use Table 2-4 or 2-5 instead.
below). If none, enter -0-. 1.
2. Additional amount 2. $300
3. Add lines 1 and 2. 3.
Table 2-4. Standard Deduction Chart for People
Born Before January 2, 1942, or Who are 4. Minimum standard deduction. 4. $850
Blind* 5. Enter the larger of line 3 or line 4. 5.

Check the correct number of boxes below. Then go to the 6. Enter the amount shown below for your
chart. filing status.
Born before
You • Single or Married filing separately —
January 2, 1942 Blind
$5,150 6.
Your spouse, if claiming Born before • Married filing jointly or Qualifying
spouse’s exemption January 2, 1942 Blind widow(er) with dependent child —
$10,300
Total number of boxes you checked • Head of household — $7,550

THEN your 7. Standard deduction.

IF your
filing status is...
Single
Married filing jointly or
Qualifying widow(er)
with dependent child
Married filing
separately
Head of household
* If someone can claim an exemption for you (or your spouse if married filing
jointly), use Table 2-5, instead.
AND the number standard
in the box above deduction
is... is...
1 $ 6,400
2 7,650
1 11,300
2 12,300
3 13,300
4 14,300
1 6,150
2 7,150
3 8,150
4 9,150
1 8,800
2 10,050
a. Enter the smaller of line 5 or line 6.
If born after January 1, 1942, and
not blind, stop here. This is your
standard deduction. Otherwise, go
on to line 7b. 7a.
b. If born before January 2, 1942, or
blind, multiply $1,250 ($1,000 if
married or qualifying widow(er) with
dependent child) by the number in
the box above. 7b.
c. Add lines 7a and 7b. This is your
standard deduction for 2006. 7c.
Earned income includes wages, salaries, tips, professional fees,
and other compensation received for personal services you
performed. It also includes any amount received as a scholarship
that you must include in your income.

Page 42 Chapter 2 Estimated Tax for 2006

Page 43 of 67 of Publication 505
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3.
Credit for
Withholding and
Estimated Tax
for 2005
What’s New
Excess social security or railroad retirement
tax withholding. You can claim a credit for
excess social security or tier 1 railroad retire-
ment tax withholding for 2005 only if your total
wages from two or more employers were more
than $90,000.
Introduction
When you file your 2005 income tax return, take
credit for all the income tax and excess social
security or railroad retirement tax withheld from
your salary, wages, pensions, etc. Also, take
credit for the estimated tax you paid for 2005.
These credits are subtracted from your tax. You
should file a return and claim these credits, even
if you do not owe tax.
If the total of your withholding and your esti-
mated tax payments for any payment period is
less than the amount you needed to pay by the
due date for that period, you may be charged a
penalty, even if the total of these credits is more
than your tax for the year.
Topics
This chapter discusses:
• How to take credit for withholding,
• How to take credit for estimated taxes you
paid, and
• How to take credit for excess social secur-
ity or railroad retirement tax withholding.
Withholding
If you had income tax withheld during 2005, you
should receive a statement by January 31,
2006, showing your income and the tax with-
held. Depending on the source of your income,
you will receive:
• Form W-2, Wage and Tax Statement,
• Form W-2G, Certain Gambling Winnings,
or
• A form in the 1099 series.
Forms W-2 and W-2G. File Form W-2 with
your income tax return. File Form W-2G with
your return if it shows any federal income tax
withheld from your winnings.
You should get at least two copies of each
form you receive. Attach one copy to the front of
your federal income tax return. Keep one copy
for your records. You should also receive copies
to file with your state and local returns.
Form W-2
Your employer should give you a Form W-2 for
2005 by January 31, 2006. You should receive a
separate Form W-2 from each employer you
worked for.
If you stopped working before the end of the
year, your employer could have given you your
Form W-2 at any time after you stopped working.
However, your employer must give it to you by
January 31, 2006.
If you ask for the form, your employer must
send it to you within 30 days after receiving your
written request or within 30 days after your final
wage payment, whichever is later.
If you have not received your Form W-2 by
January 31, 2006, you should ask your em-
ployer for it. If you do not receive it by February
15, call the IRS. The number is listed in the Form
1040, Form 1040A, and Form 1040EZ instruc-
tions. You will be asked for the following infor-
mation.
• Your employer’s name, address, and tele-
phone number, and, if known, your
employer’s identification number.
• Your address, social security number, and
daytime telephone number.
• The dates of employment.
• An estimate of your total wages and fed-
eral income tax withheld.
Form W-2 shows your total pay and other
compensation and the income tax, social secur-
ity tax, and Medicare tax that was withheld dur-
ing the year. Include the federal income tax
withheld (as shown on Form W-2) on:
• Line 64, if you file Form 1040,
• Line 39, if you file Form 1040A, or
• Line 7, if you file Form 1040EZ.
Form W-2 is also used to report any taxable
sick pay you received and any income tax with-
held from your sick pay.
Form W-2G
If you had gambling winnings in 2005, the payer
may have withheld income tax. If tax was with-
held, the payer will give you a Form W-2G show-
ing the amount you won and the amount of tax
withheld.
Report the amounts you won on line 21 of
Form 1040. Take credit for the tax withheld on
line 64 of Form 1040. If you had gambling win-
nings, you must use Form 1040; you cannot use
Form 1040A or Form 1040EZ.
Gambling losses can be deducted on Sched-
ule A (Form 1040) as a miscellaneous itemized
deduction. However, you cannot deduct more
than the gambling winnings you report on line
21.
Chapter 3 Credit for Withholding and Estimated Tax for 2005
13:46 - 5-APR-2006
The 1099 Series
Most forms in the 1099 series are not filed with
your return. You should receive these forms by
January 31, 2006. Keep these forms for your
records. There are several different forms in this
series, including:
• Form 1099-B, Proceeds From Broker and
Barter Exchange Transactions,
• Form 1099-DIV, Dividends and Distribu-
tions,
• Form 1099-INT, Interest Income,
• Form 1099-MISC, Miscellaneous Income,
• Form 1099-OID, Original Issue Discount,
• Form 1099-Q, Payments From Qualified
Education Programs,
• Form 1099-R, Distributions From Pen-
sions, Annuities, Retirement or
Profit-Sharing Plans, IRAs, Insurance
Contracts, etc.,
• Form SSA-1099, Social Security Benefit
Statement, and
• Form RRB-1099, Payments by the Rail-
road Retirement Board.
If you received the types of income reported
on some forms in the 1099 series, you may not
be able to use Form 1040A or Form 1040EZ.
See the instructions to these forms for details.
Form 1099-R. Attach Form 1099-R to your
return if federal income tax withholding is shown
in box 4. Include the amount withheld in the total
on line 64 of Form 1040, or on line 39 of Form
1040A. You cannot use Form 1040EZ if you
received payments reported on Form 1099-R.
Backup withholding. If you were subject to
backup withholding on income you received dur-
ing 2005, include the amount withheld, as
shown on your Form 1099, in the total on line 64
of Form 1040, line 39 of Form 1040A, or line 7 of
Form 1040EZ.
Form Not Correct
If you receive a form with incorrect information,
you should ask the payer for a corrected form.
Call the telephone number or write to the ad-
dress given for the payer on the form. The cor-
rected Form W-2G or Form 1099 you receive will
be marked “Corrected.” A special form, Form
W-2c, Corrected Wage and Tax Statement, is
used to correct a Form W-2.
Form Received After Filing
If you file your return and you later receive a
form for income that you did not include on your
return, you should report the income and take
credit for any income tax withheld by filing Form
1040X.
Separate Returns
If you are married but file a separate return, you
can take credit only for the tax withheld from
your own income. Do not include any amount
withheld from your spouse’s income. However,
different rules may apply if you live in a commu-
nity property state.
Page 43
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Community property states. The following
are community property states.
• Arizona.
• California.
• Idaho.
• Louisiana.
• Nevada.
• New Mexico.
• Texas.
• Washington.
• Wisconsin.
Generally, if you live in a community property
state and file a separate return, you and your
spouse must each report half of all community
income in addition to your own separate income.
If you are required to report half of all community
income, you are entitled to take credit for half of
all taxes withheld on the community income. If
you were divorced during the year, each of you
generally must report half the community in-
come and can take credit for half the withholding
on that community income for the period before
the divorce.
For more information on these rules, and
some exceptions, see Publication 555, Commu-
nity Property.
Fiscal Years
If you file your tax return on the basis of a fiscal
year (a 12-month period ending on the last day
of any month except December), you must fol-
low special rules, described below, to determine
your credit for federal income tax withholding.
Normal withholding. You can claim credit on
your tax return only for the tax withheld during
the calendar year ending in your fiscal year. You
cannot claim credit for any of the tax withheld
during the calendar year beginning in your fiscal
year. You will be able to claim credit for that
withholding on your return for your next fiscal
year.
The Form W-2 or 1099-R you receive for the
calendar year that ends during your fiscal year
will show the tax withheld and the income you
received during that calendar year.
Although you take credit for all the withheld
tax shown on the form, report only the part of the
income shown on the form that you received
during your fiscal year. Add to that the income
you received during the rest of your fiscal year.
Example. Miles Hanson files his return for a
fiscal year ending June 30, 2005. In January
2005, he received a Form W-2 that showed that
his wages for 2004 were $15,600 and that his
income tax withheld was $1,409.40. His records
show that he had received $7,500 of the wages
by June 30, 2004, and $8,100 from July 1
through December 31, 2004.
On his return for the fiscal year ending June
30, 2005, Miles will report the $8,100 he was
paid in July through December of 2004, plus
whatever he was paid during the rest of the fiscal
year, January 1, 2005, to June 30, 2005. How-
ever, he takes credit for all $1,409.40 that was
withheld during 2004. On his return for the fiscal
year ending June 30, 2006, he can take credit
Page 44 Chapter 3 Credit for Withholding and Estimated Tax for 2005
for any tax withheld during 2005 but not for any
tax withheld during 2006.
On his return for the fiscal year ending June
30, 2007, Miles takes credit for any income tax
withheld in 2006.
Backup withholding. If income tax has been
withheld under the backup withholding rule, take
credit for it on your tax return for the fiscal year in
which you received the payment.
Example. Emily Smith’s records show that
she received income in February 2006 from
which $50 was withheld under the backup with-
holding rule. On her tax return for the fiscal year
ending June 30, 2006, Emily takes credit for
withheld income tax of $50.
Estimated Tax
Take credit for all your estimated tax payments
for 2005 on line 65 of Form 1040 or line 40 of
Form 1040A. Include any overpayment from
2004 that you had credited to your 2005 esti-
mated tax. You must use Form 1040 or Form
1040A if you paid estimated tax. You cannot use
Form 1040EZ.
If you were a beneficiary of an estate or trust,
include on Form 1040, line 65, any trust pay-
ments of estimated tax credited to you (from box
13 (code A) of Schedule K-1 (Form 1041),
Beneficiary’s Share of Income, Deductions,
Credits, etc.). On the dotted line next to line 37 of
Schedule E (Form 1040) write “ES payment
claimed” and the amount. Do not include this
amount in the total on line 37. The payment is
treated as being made by you on January 15,
2006.
Name changed. If you changed your name,
and you made estimated tax payments using
your old name, attach a statement to the front of
your tax return indicating:
• When you made the payments,
• The amount of each payment,
• The IRS address to which you sent the
payments,
• Your name when you made the payments,
and
• Your social security number.
The statement should cover payments you
made jointly with your spouse as well as any you
made separately.
Separate Returns
If you and your spouse made separate esti-
mated tax payments for 2005 and you file sepa-
rate returns, you can take credit only for your
own payments.
If you made joint estimated tax payments,
you must decide how to divide the payments
between your returns. One of you can claim all
of the estimated tax paid and the other none, or
you can divide it in any other way you agree on.
If you cannot agree, you must divide the pay-
ments in proportion to each spouse’s individual
tax as shown on your separate returns for 2005.
Example. James and Evelyn Brown made
joint estimated tax payments for 2005 totaling
13:46 - 5-APR-2006
$3,000. They file separate Forms 1040. James’
tax is $4,000 and Evelyn’s is $1,000. If they do
not agree on how to divide the $3,000, they must
divide it proportionately between their returns.
Because James’ tax ($4,000) is 80% of the total
tax ($5,000), his share of the estimated tax is
$2,400 (80% of $3,000). The balance, $600
(20% of $3,000), is Evelyn’s share.
Divorced Taxpayers
If you made joint estimated tax payments for
2005, and you were divorced during the year,
either you or your former spouse can claim all of
the joint payments, or you each can claim part of
them. If you cannot agree on how to divide the
payments, you must divide them in proportion to
each spouse’s individual tax as shown on your
separate returns for 2005. See Example above
under Separate Returns.
If you claim any of the joint payments on your
tax return, enter your former spouse’s social
security number (SSN) in the space provided on
the front of Form 1040 or Form 1040A. If you
divorced and remarried in 2005, enter your pres-
ent spouse’s SSN in that space and write your
former spouse’s SSN, followed by “DIV,” to the
left of Form 1040, line 65, or Form 1040A, line
40.
Excess Social Security
or Railroad Retirement
Tax Withholding
Most employers must withhold social security
tax from your wages. The federal government
and state and local governments in some cases
do not have to withhold social security tax from
their employees’ wages. If you work for a rail-
road employer, that employer must withhold tier
1 railroad retirement (RRTA) tax and tier 2
RRTA tax.
Two or more employers. If you worked for
two or more employers in 2005, too much social
security tax or RRTA tax may have been with-
held from your pay. You may be able to claim the
excess as a credit against your income tax when
you file your return. Table 3-1 shows the maxi-
mum amount that should have been withheld for
any of these taxes for 2005. Figure the excess
withholding on the appropriate worksheet on
page 46.
Table 3-1. Maximum Social
Security and RRTA
Withholding for 2005
Maximum
wages Maximum
subject Tax tax to be
Type of Tax to tax rate withheld
Social security $90,000 6.2% $5,580.00
Tier 1 railroad
retirement
(RRTA) . . . . $90,000 6.2% $5,580.00
Tier 2 RRTA . . $66,900 4.4% $2,943.60
Joint returns. If you are filing a joint return,
you cannot add any social security or RRTA tax
withheld from your spouse’s income to the
Page 45 of 67 of Publication 505 13:46 - 5-APR-2006

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amount withheld from your income. You must
figure the excess separately for both you and
your spouse to determine if either of you has
excess withholding.
Note. All wages are subject to Medicare tax
withholding.
Employer’s error. If any one employer with-
held too much social security or RRTA tax, you
cannot claim the excess as a credit against your
income tax. The employer should adjust the tax
for you. If the employer does not adjust the
overcollection, you can file a claim for refund
using Form 843, Claim for Refund and Request
for Abatement.
Worksheet for
Nonrailroad Employees
If you did not work for a railroad during 2005,
figure the excess social security withholding on
Worksheet 3-1 (see next page).
Note. If you worked for both a railroad em-
ployer and a nonrailroad employer, use Work-
sheet 3-2 (see next page) to figure excess social
security and tier 1 RRTA tax.
Where to claim credit for excess social se-
curity withholding. If you file Form 1040,
enter the excess on line 67.
If you file Form 1040A, include the excess in
the total on line 43. Write “Excess SST” and
show the amount of the credit in the space to the
left of the line.
You cannot claim excess social security tax
withholding on Form 1040EZ.
Example. In 2005, Tom Martin earned
$52,000 working for Company A and $40,200
working for Company B. Company A withheld
$3,224 for social security tax. Company B with-
held $2,492.40 for social security tax. Because
he worked for two employers and earned more
than $90,000, he had too much social security
tax withheld. Tom figures his credit of $136.40,
as shown on the illustrated Worksheet 3-1 be-
low.
Worksheets for
Railroad Employees
If you worked for a railroad during 2005, figure
your excess withholding on Worksheets 3-2 and
3-3 (see next page).
Where to claim credit for excess tier 1 RRTA
withholding. If you file Form 1040, enter the
excess on line 67.
If you file Form 1040A, include the excess in
the total on line 43. Write “Excess SST” and
show the amount of the credit in the space to the
left of the line.
You cannot claim excess tier 1 RRTA with-
holding on Form 1040EZ.
How to claim refund of excess tier 2 RRTA.
To claim a refund of tier 2 tax, use Form 843. Be
sure to attach a copy of all of your W-2 forms.

Worksheet 3-1. Excess Social Security —Nonrailroad Employees —

Illustrated

1. Add all social security tax withheld (but not more than $5,580
for each employer). This tax should be shown in box 4 of your
Forms W-2. Enter the total here . . . . . . . . . . . . . . . . . . . . . . 1. $5,716.40
2. Enter any uncollected social security tax on tips or group-term
life insurance included in the total on Form 1040, line 63 . . . . . 2. -0-
3. Add lines 1 and 2. If $5,580 or less, stop here. You cannot
claim the credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. 5,716.40
4. Social security limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. $5,580.00
5. Excess. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . 5. $136.40

Chapter 3 Credit for Withholding and Estimated Tax for 2005 Page 45
Page 46 of 67 of Publication 505 13:46 - 5-APR-2006

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Worksheet 3-1. Excess Social Security —Nonrailroad Employees

1. Add all social security tax withheld (but not more than $5,580
for each employer). This tax should be shown in box 4 of your
Forms W-2. Enter the total here . . . . . . . . . . . . . . . . . . . . . . 1.
2. Enter any uncollected social security tax on tips or group-term
life insurance included in the total on Form 1040, line 63 . . . . . 2.
3. Add lines 1 and 2. If $5,580 or less, stop here. You cannot
claim the credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Social security limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. $5,580.00
5. Excess. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . 5.

Worksheet 3-2. Excess Social Security and Tier 1 RRTA —Railroad

Employees

1. Add all social security and tier 1 RRTA tax withheld (but not
more than $5,580 for each employer). Social security tax should
be shown in box 4 and tier 1 RRTA should be shown in box 14
of your Forms W-2. Enter the total here . . . . . . . . . . . . . . . . . 1.
2. Enter any uncollected social security and tier 1 RRTA tax on
tips or group-term life insurance included in the total on Form
1040, line 63 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Add lines 1 and 2. If $5,580 or less, stop here. You cannot claim
the credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Social security and tier 1 RRTA tax limit . . . . . . . . . . . . . . . . . 4. $5,580.00
5. Excess. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . 5.

Worksheet 3-3. Excess Tier 2 RRTA —Railroad Employees

1. Add all tier 2 RRTA tax withheld (but not more than $2,943.60
for each employer). Box 14 of your Forms W-2 should show tier
2 RRTA tax. Enter the total here . . . . . . . . . . . . . . . . . . . . . . 1.
2. Enter any uncollected tier 2 RRTA tax on tips or group-term life
insurance included in the total on Form 1040, line 63 . . . . . . . . 2.
3. Add lines 1 and 2. If $2,943.60 or less, stop here. You cannot
claim the credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Tier 2 RRTA tax limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. $2,943.60
5. Excess. Subtract line 4 from line 3. . . . . . . . . . . . . . . . . . . . . 5.

Page 46 Chapter 3 Credit for Withholding and Estimated Tax for 2005
Page 47 of 67 of Publication 505
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4.
Underpayment
Penalty
for 2005
What’s New
Penalty rate. The penalty for underpayment
of 2005 estimated tax is figured at an annual rate
of 6% for the number of days the underpayment
remained unpaid from April 16, 2005, through
September 30, 2005; and 7% from October 1,
2005, through April 15, 2006.
If you were affected by Hurricane Ka-
!
CAUTION
trina, the due dates for the September
15, 2005, and January 17, 2006, re-
quired installments are both extended to Febru-
ary 28, 2006. If you were affected by Hurricane
Rita or Wilma, the due date for the January 17,
2006, required installment is extended to Febru-
ary 28, 2006. See the 2005 Instructions for Form
2210 for more information.
Reminders
Household employment taxes. When figur-
ing the penalty for failure to pay estimated in-
come tax, you generally must include with your
estimated taxes any household employment
taxes that you may have to pay.
Failure to pay estimated tax. You will not be
liable for the penalty for failure to pay estimated
income tax if the total tax shown on your return
minus the amount you paid through withholding
(including excess social security and railroad
retirement tax withholding) is less than $1,000.
Waiver of penalty. The IRS can waive the
penalty for underpayment if you did not make a
payment because of a casualty, disaster, or
other unusual circumstance and it would be in-
equitable to impose the penalty. See Waiver of
Penalty, later.
IRS will figure your penalty. You generally
do not need to figure your underpayment pen-
alty. In most cases, the IRS will figure it for you.
You only need to figure your penalty in the fol-
lowing three situations.
• You are requesting a waiver of part, but
not all, of the penalty.
• You are using the annualized income in-
stallment method to figure the penalty.
• You are treating the federal income tax
withheld from your wages as paid on the
dates actually withheld.
Introduction
If you did not pay enough tax either through
withholding or by making estimated tax pay-
ments, you will have an underpayment of esti-
mated tax and you may have to pay a penalty.
Having completed copies of your latest fed-
eral income tax returns may help you better
understand this chapter.
No penalty. Generally, you will not have to
pay a penalty for 2005 if any of the following
situations applies.
• The total of your withholding and esti-
mated tax payments was at least as much
as your 2004 tax (or 110% of your 2004
tax if your adjusted gross income was
more than $150,000, $75,000 if your 2005
filing status is married filing separately),
and you paid all required estimated tax
payments on time.
• The tax balance due on your return is no
more than 10% of your total 2005 tax, and
you paid all required estimated tax pay-
ments on time.
• Your total 2005 tax (defined later) minus
your withholding is less than $1,000.
• You did not have a tax liability for 2004.
• You did not have any withholding taxes
and your current year tax less any house-
hold employment taxes is less than
$1,000.
Special rules apply if you are a farmer or fisher-
man.
IRS can figure the penalty for you. If you
think you owe the penalty, but you do not want to
figure it yourself when you file your tax return,
you may not have to. Generally, the IRS will
figure the penalty for you and send you a bill.
However, if you think you are able to lower or
eliminate your penalty, you must complete Form
2210 or Form 2210-F and attach it to your return.
See Form 2210, later.
Topics
This chapter discusses:
• The general rule for the underpayment
penalty,
• Special rules for certain individuals,
• Exceptions to the underpayment penalty,
• How to figure your underpayment and the
amount of your penalty on Form 2210, and
• How to ask IRS to waive the penalty.
Useful Items
You may want to see:
Form (and Instructions)
❏ 2210 Underpayment of Estimated Tax by
Individuals, Estates, and Trusts
❏ 2210-F Underpayment of Estimated Tax
by Farmers and Fishermen
See chapter 5 for information about getting
these forms.
Chapter 4
13:46 - 5-APR-2006
General Rule
In general, you may owe a penalty for 2005 if the
total of your withholding and estimated tax pay-
ments did not equal at least the smaller of:
1. 90% of your 2005 tax, or
2. 100% of your 2004 tax. (Your 2004 tax
return must cover a 12-month period.)
Your 2005 tax, for this purpose, is your Total tax
for 2005, defined under Exceptions, later.
Special rules for certain individuals. There
are special rules for farmers and fishermen, and
for certain higher income taxpayers.
Farmers and fishermen. If at least
two-thirds of your gross income for 2004 or 2005
is from farming or fishing, substitute 662/3% for
90% in (1) above.
See Farmers and Fishermen, later.
Higher income taxpayers. If less than
two-thirds of your gross income for 2004 and
2005 is from farming or fishing and your ad-
justed gross income (AGI) for 2004 was more
than $150,000 ($75,000 if your 2005 filing status
is married filing a separate return), substitute
110% for 100% in (2) above.
For 2004, AGI is the amount shown on Form
1040, line 37; Form 1040A, line 21; and Form
1040EZ, line 4.
Penalty figured for each period. Because
the penalty is figured separately for each pay-
ment period, you may owe a penalty for a pay-
ment period even if you later paid enough to
make up the underpayment. If you did not pay
enough tax by the due date of any of the pay-
ment periods, you may owe a penalty even if you
are due a refund when you file your income tax
return.
Example. You did not make estimated tax
payments for 2005 because you thought you
had enough tax withheld from your wages. Early
in January 2006, you made an estimate of your
total 2005 tax. Then you realized that your with-
holding was $2,000 less than the amount
needed to avoid a penalty for underpayment of
estimated tax.
On January 10, you made an estimated tax
payment of $3,000, which is the difference be-
tween your withholding and your estimate of
your total tax. Your final return shows your total
tax to be $50 less than your estimate, so you are
due a refund.
You do not owe a penalty for your payment
due January 15, 2006. However, you may owe a
penalty through January 10, 2006, the day you
made the $3,000 payment, for your underpay-
ments for the earlier payment periods.
Minimum required each period. You will
owe a penalty for any 2005 payment period for
which your estimated tax payment plus your
withholding for the period and overpayments for
previous periods was less than the smaller of:
1. 22.5% of your 2005 tax, or
2. 25% of your 2004 tax. (Your 2004 tax re-
turn must cover a 12-month period.)
Underpayment Penalty for 2005 Page 47
Page 48 of 67 of Publication 505
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Note. If you are subject to the rule for higher
income taxpayers, discussed earlier, substitute
27.5% for 25% in (2) above.
When penalty is charged. If you miss a
payment or you paid less than the minimum
required in a period, you may be charged an
underpayment penalty from the date the amount
was due to the date the payment is made.
Trust payments of estimated tax. If you
were a beneficiary of an estate or trust that
credited its estimated tax payments to you, treat
the amount credited (box 13 (code A) of Sched-
ule K-1 (Form 1041), Beneficiary’s Share of In-
come, Deductions, Credits, etc.) as an
estimated tax payment made by you on January
15, 2006.
Amended returns. If you file an amended re-
turn by the due date of your original return, use
the tax shown on your amended return to figure
your required estimated tax payments. If you file
an amended return after the due date of the
original return, use the tax shown on the original
return.
However, if you and your spouse file a joint
return after the due date to replace separate
returns you originally filed by the due date, use
the tax shown on the joint return to figure your
required estimated tax payments. This rule ap-
plies only if both original separate returns were
filed on time.
2004 separate returns and 2005 joint return.
If you file a joint return with your spouse for
2005, but you filed separate returns for 2004,
your 2004 tax is the total of the tax shown on
your separate returns. You filed a separate re-
turn if you filed as single, head of household, or
married filing separately.
2004 joint return and 2005 separate returns.
If you file a separate return for 2005, but you
filed a joint return with your spouse for 2004,
your 2004 tax is your share of the tax on the joint
return. You filed a separate return if you filed as
single, head of household, or married filing sep-
arately.
To figure your share of the taxes on a joint
return, first figure the tax both you and your
spouse would have paid had you filed separate
returns for 2004 using the same filing status as
for 2005. Then multiply the tax on the joint return
by the following fraction.
The tax you would have paid
had you filed a separate return
The total tax you and your
spouse would have paid had
you filed separate returns
Example. Lisa and Paul filed a joint return
for 2004 showing taxable income of $49,000
and a tax of $6,639. Of the $49,000 taxable
income, $41,000 was Lisa’s and the rest was
Paul’s. For 2005, they file married filing sepa-
rately. Lisa figures her share of the tax on the
2004 joint return as follows.
2004 tax on $41,000 based on a
separate return . . . . . . . . . . . . . . . $ 6,994
2004 tax on $8,000 based on a
separate return . . . . . . . . . . . . . . . 846
Total . . . . . . . . . . . . . . . . . . . . . . . $ 7,840
Page 48 Chapter 4 Underpayment Penalty for 2005
Lisa’s percentage of total
($6,994 ÷ $ 7,840) . . . . . . . . . . . . . 89.21%
Lisa’s part of tax on joint return
($6,639 × 89.21%) . . . . . . . . . . . . . $ 5,923
Form 2210. In most cases, you do not need to
file Form 2210. The IRS will figure the penalty for
you and send you a bill. If you want us to figure
the penalty for you, leave the penalty line on
your return blank. Do not file Form 2210.
To determine if you should file Form 2210,
see Part II of Form 2210. If you decide to figure
your penalty, complete Part I, Part II, and either
Part III or Part IV of Form 2210. If you use Form
2210, you cannot file Form 1040EZ.
On Form 1040, enter the amount of your
penalty on line 76. If you owe tax on line 75, add
the penalty to your tax due and show your total
payment on line 75. If you are due a refund,
subtract the penalty from the overpayment you
show on line 72.
On Form 1040A, enter the amount of your
penalty on line 48. If you owe tax on line 47, add
the penalty to your tax due and show your total
payment on line 47. If you are due a refund,
subtract the penalty from the overpayment you
show on line 44.
Lowering or eliminating the penalty. You
may be able to lower or eliminate your penalty if
you file Form 2210. You must file Form 2210
with your return if any of the following applies.
• You request a waiver. See Waiver of Pen-
alty, later.
• You use the annualized income install-
ment method. See the explanation of this
method under Annualized Income Install-
ment Method (Schedule AI), later.
• You use your actual withholding for each
payment period for estimated tax pur-
poses. See Actual withholding method
under Figuring Your Underpayment (Sec-
tion A), later.
• You base any of your required install-
ments on the tax shown on your 2004 re-
turn and you filed or are filing a joint return
for either 2004 or 2005, but not for both
years.
Exceptions
Generally, you do not have to pay an underpay-
ment penalty if either of the following conditions
apply:
• Your total tax is less than $1,000, or
• You had no tax liability last year.
Less Than $1,000 Due
You do not owe a penalty if the total tax shown
on your return minus the amount you paid
through withholding (including excess social se-
curity and railroad retirement tax withholding) is
less than $1,000.
Total tax for 2005. For 2005, your total tax on
Form 1040 is the amount on line 57 increased by
certain other taxes and reduced by certain re-
fundable credits.
13:46 - 5-APR-2006
Add the total of the following taxes to the
amount on Form 1040, line 57.
• Self-employment tax (line 58).
• Tax from recapture of investment credit,
low-income housing credit, qualified elec-
tric vehicle credit, Indian employment
credit, new markets credit, or credit for
employer-provided childcare facilities (in-
cluded on line 63).
• Tax on early distributions from (a) an IRA
or other qualified retirement plan, (b) an
annuity, or (c) a modified endowment con-
tract entered into after June 20, 1988 (in-
cluded on line 60).
• Tax on distributions from a Coverdell edu-
cation savings account or a qualified tui-
tion program not used for qualified
education expenses (included on line 60).
• Tax on Archer MSA or health savings ac-
count distributions not used for qualified
medical expenses (included on line 63).
• Section 72(m)(5) penalty tax (included on
line 63).
• Advance earned income credit payments
(line 61).
• Tax on accumulation distribution of trusts
(included on line 63).
• Interest due under sections 453(l)(3) and
453A(c) on certain installment sales of
property (included on line 63).
• An increase or decrease in tax as a share-
holder in a qualified electing fund (in-
cluded on line 63).
• Tax on electing small business trusts in-
cluded on Form 1041, Schedule G, line 7
(included on line 63).
• Tax on income not effectively connected
with a U.S. trade or business from Form
1040NR, lines 53 and 56 (included on line
63).
• Household employment taxes, including
any advance EIC payments (line 62). See
the Instructions for Form 2210, Line 2, for
an exception to including this amount.
From the total of Form 1040, line 57 and the
other taxes listed above, subtract the following
refundable credits.
• Earned income credit (line 66a).
• Additional child tax credit (line 68).
• Credit for federal tax paid on fuels (in-
cluded on line 70).
• Health coverage tax credit (included on
line 70).
Your total tax on Form 1040A is the amount
on line 38 minus the amount on lines 41a and
42. Your total tax on Form 1040EZ is the amount
on line 10 minus the amount on line 8a.
Paid through withholding. For 2005, the
amount you paid through withholding on Form
1040 is the amount on line 64 plus any excess
social security or railroad retirement tax with-
holding on line 67. On Form 1040A, the amount
you paid through withholding is the amount on
line 39 plus any excess social security or rail-
Page 49 of 67 of Publication 505
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road retirement tax withholding included on line
43. On Form 1040EZ, it is the amount on line 7.
No Tax Liability Last Year
You do not owe a penalty if you had no tax
liability last year and you were a U.S. citizen or
resident for the whole year. For this rule to apply,
your tax year must have included all 12 months
of the year.
You had no tax liability for 2004 if your total
tax was zero or you were not required to file an
income tax return.
Example. Ray, who is single and 22 years
old, was unemployed for most of 2004. He
earned $2,700 in wages before he was laid off,
and he received $2,500 in unemployment com-
pensation afterwards. He had no other income.
Even though he had gross income of $5,200, he
did not have to pay income tax because his
gross income was less than the filing require-
ment for a single person under age 65 ($7,950
for 2004). He filed a return only to have his
withheld income tax refunded to him.
In 2005, Ray began regular work as an inde-
pendent contractor. Ray made no estimated tax
payments in 2005. Even though he did owe tax
at the end of the year, Ray does not owe the
underpayment penalty for 2005 because he had
no tax liability in 2004.
Total tax for 2004. For 2004, your total tax on
Form 1040 is the amount on line 56 increased by
certain other taxes and reduced by certain re-
fundable credits.
Add the total of the following taxes to the
amount on Form 1040, line 56.
• Self-employment tax (line 57).
• Tax from recapture of investment credit,
low-income housing credit, qualified elec-
tric vehicle credit, Indian employment
credit, new markets credit, or credit for
employer-provided childcare facilities (in-
cluded on line 62).
• Tax on early distributions from (a) an IRA
or other qualified retirement plan, (b) an
annuity, or (c) a modified endowment con-
tract entered into after June 20, 1988 (in-
cluded on line 59).
• Tax on distributions from a Coverdell edu-
cation savings account or a qualified tui-
tion program not used for qualified
education expenses (included on line 59).
• Tax on Archer MSA or health savings ac-
count distributions not used for qualified
medical expenses (included on line 62).
• Section 72(m)(5) penalty tax (included on
line 62).
• Advance earned income credit payments
(line 60).
• Tax on accumulation distribution of trusts
(included on line 62).
• Interest due under sections 453(l)(3) and
453A(c) on certain installment sales of
property (included on line 62).
• An increase or decrease in tax as a share-
holder in a qualified electing fund (in-
cluded on line 62).
• Tax on electing small business trusts in-
cluded on Form 1041, Schedule G, line 7
(included on line 62).
• Tax on income not effectively connected
with a U.S. trade or business from Form
1040NR, lines 52 and 55 (included on line
62).
• Household employment taxes, including
any advance EIC payments (line 61). See
the Instructions for Form 2210, Line 2, for
an exception to including this amount.
From the total of Form 1040, line 56 and the
other taxes listed above, subtract the following
refundable credits.
• Earned income credit (line 65a).
• Additional child tax credit (line 67).
• Credit for federal tax paid on fuels (in-
cluded on line 69).
• Health coverage tax credit (included on
line 69).
Your total tax on Form 1040A is the amount
on line 38 minus the amount on lines 41a and
42. Your total tax on Form 1040EZ is the amount
on line 10 minus the amount on line 8a.
Figuring Your Required
Annual Payment
(Part I)
Figure your required annual payment in Part I of
Form 2210, following the line-by-line instruc-
tions. If you rounded the entries on your return to
whole dollars, you can round on Form 2210.
Example. The tax on Ivy Fields’ 2004 return
was $10,000. Her AGI was not more than
$150,000. The tax on her 2005 return (Form
1040, line 44) is $11,000. She does not claim
any credits or pay any other taxes.
For 2005, Ivy had $1,600 income tax with-
held and paid $6,800 estimated tax. Her total
payments were $8,400. 90% of her 2005 tax is
$9,900. Because she paid less than her 2004
tax ($10,000) and less than 90% of her 2005 tax,
and does not meet an exception, Ivy knows that
she owes a penalty for underpayment of esti-
mated tax. The IRS will figure the penalty for Ivy,
but she decides to figure it herself on Form 2210
and pay it with her $2,600 tax balance when she
files her tax return.
Ivy’s required annual payment is $9,900
($11,000 × 90%) because that is smaller than
her 2004 tax.
Figure 4-A, at the end of this chapter, shows
page 1 of Ivy’s filled-in Form 2210. Her required
annual payment of $9,900 is shown on line 9.
Different 2004 filing status. If you file a sepa-
rate return for 2005, but you filed a joint return
with your spouse for 2004, see 2004 joint return
and 2005 separate returns, earlier, to figure the
amount to enter as your 2004 tax on line 8 of
Form 2210.
Chapter 4
13:46 - 5-APR-2006
Short Method for
Figuring the Penalty
(Part III)
You may be able to use the short method in Part
III of Form 2210 to figure your penalty for un-
derpayment of estimated tax. If you qualify to
use this method, it will result in the same penalty
amount as the regular method. However, either
the annualized income installment method or
the actual withholding method, explained later,
may result in a lower penalty.
You can use the short method only if you
meet one of the following requirements.
• You made no estimated tax payments for
2005 (it does not matter whether you had
income tax withholding).
• You paid estimated tax in equal amounts
on your due dates.
If you do not meet either requirement, figure
your penalty using the regular method in Form
2210, Part IV.
Note. If any payment was made before the
due date, you can use the short method, but the
penalty may be less if you use the regular
method. If the payment was only a few days
early, the difference is likely to be small.
You cannot use the short method if any of the
following applies.
• You made any estimated tax payments
late.
• You checked box C or D in Part II of Form
2210.
• You are filing Form 1040NR or
1040NR-EZ and you did not receive
wages as an employee subject to U.S. in-
come tax withholding.
If you use the short method, you can-
!
CAUTION
not use the annualized income install-
m e n t m e t h o d t o fi g u r e yo u r
underpayment for each payment period. Also,
you cannot use your actual withholding during
each period to figure your payments for each
period. These methods, which may give you a
smaller penalty amount, are explained later
under Figuring Your Underpayment.
Completing Part III. Complete Part III of Form
2210 following the line-by-line instructions.
First, figure your total underpayment for the
year (line 14) by subtracting the total of your
withholding and estimated tax payments (line
13) from your required annual payment (Part I,
line 9). Then figure the penalty you would owe if
the underpayment remained unpaid up to April
15, 2006. This amount (line 15) is the maximum
estimated tax penalty on your underpayment.
Next, figure any part of the maximum penalty
you do not owe (line 16) because your un-
derpayment was paid before the due date of
your return. For example, if you filed your 2005
return and paid the tax balance on April 3, 2006,
you do not owe the penalty for the 12-day period
from April 4 through April 15. Therefore, you
would figure the amount to enter on line 16 using
12 days.
Underpayment Penalty for 2005 Page 49
Page 50 of 67 of Publication 505
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Finally, subtract from the maximum penalty
amount (line 15) any part you do not owe (line
16). The result (line 17) is the penalty you owe.
Enter that amount on line 76 of Form 1040 or
line 48 of Form 1040A. Attach Form 2210 to your
return only if you checked one of the boxes in
Part II.
Example. Assume the same facts for Ivy
Fields as in the previous example. Ivy paid her
estimated tax payments in four installments of
$1,700 ($6,800 ÷ 4) each on the dates they were
due.
Ivy qualifies to use the short method to figure
her estimated tax penalty. Using the annualized
income installment method or actual withholding
will not give her a smaller penalty amount be-
cause her income and withholding were distrib-
uted evenly throughout the year. Therefore, she
figures her penalty in Part III of Form 2210 and
leaves Part IV (not shown) blank.
Ivy figures her $1,500 total underpayment for
the year (line 14) by subtracting the total of her
withholding and estimated tax payments
($8,400) from her $9,900 required annual pay-
ment (Part I, line 9). The maximum penalty on
her underpayment (line 15) is $67 ($1,500 ×
.04457).
Ivy plans to file her return and pay her $2,600
tax balance on March 16, 2006, 30 days before
April 15. Therefore, she does not owe part of the
maximum penalty amount. The part she does
not owe (line 16) is figured as follows.
$1,500 × 30 × .00019 = $9
Ivy subtracts the $9 from the $67 maximum
penalty and enters the result, $58, on Form
2210, line 17, and on Form 1040, line 76. She
adds $58 to her $2,600 tax balance and enters
the result, $2,658 on line 75 of her Form 1040.
Ivy files her return on March 16 and attaches a
check for $2,658. Because Ivy did not check any
of the boxes in Part II, she does not attach Form
2210 to her tax return.
Figure 4-A, at the end of this chapter, shows
Ivy’s filled-in Form 2210, Part III.
Regular Method for
Figuring the Penalty
(Part IV)
You must use the regular method in Part IV of
Form 2210 to figure your penalty for underpay-
ment of estimated tax if any of the following
apply to you.
• You paid one or more estimated tax pay-
ments on a date other than the due date.
• You paid at least one, but less than four,
installments of estimated tax.
• You paid estimated tax payments in une-
qual amounts.
• You use the annualized income install-
ment method to figure your underpayment
for each payment period.
• You use your actual withholding during
each payment period to figure your pay-
ments.
Page 50 Chapter 4 Underpayment Penalty for 2005
If you use the regular method, figure your
underpayment for each payment period in Sec-
tion A, then figure your penalty for each payment
period in Section B.
If you were affected by Hurricanes
!
CAUTION
Katrina, Rita, or Wilma, see the In-
structions for Form 2210 for special
rules that apply.
Figuring Your Underpayment
(Section A)
Figure your underpayment of estimated tax for
each payment period in Section A following the
line-by-line instructions. Complete all lines for a
payment period column before completing the
next column.
Required installment — line 18. Your re-
quired payment for each payment period (line
18) is usually one-fourth of your required annual
payment (Part I, line 9). However, if you are
using the annualized income installment method
(described later), first complete Schedule AI
(Form 2210), and then enter the amounts from
line 25 of that schedule on line 18 of Form 2210.
Payments. On line 19, enter in each column
the total of:
• Your estimated tax paid after the due date
for the previous column and by the due
date shown at the top of the column, and
• One-fourth of your withholding.
For special rules for figuring your payments, see
the instructions for Form 2210.
If you file Form 1040, your withholding is the
amount on line 64, plus any excess social secur-
ity or railroad retirement tax withholding on line
67. If you file Form 1040A, your withholding is
the amount on line 39 plus any excess social
security or railroad retirement tax withholding
included in line 43.
Actual withholding method. Instead of us-
ing one-fourth of your withholding for each quar-
ter, you can choose to use the amounts actually
withheld by each due date. You can make this
choice separately for the tax withheld from your
wages and for all other withholding.
Using your actual withholding may result in a
smaller penalty if most of your withholding oc-
curred early in the year.
If you use your actual withholding, you must
check box D in Form 2210, Part II. Then com-
plete Form 2210 and file it with your return.
Regular Installment Method
If you received your income evenly throughout
the year, use the regular installment method to
figure your estimated tax underpayment for the
year.
Example. Ben Brown’s 2005 total tax (Form
1040, line 63) is $7,031, the total of his $4,685
income tax and $2,346 self-employment tax. His
2004 AGI was less than $150,000. He does not
owe any other taxes or claim any credits other
than for withholding. His 2004 tax was $6,116.
See Figure 4-B, at the end of this chapter, to see
Ben’s completed Form 2210, Part I.
Ben’s employer withheld $3,228 income tax
during 2005. Ben paid no estimated tax for either
13:46 - 5-APR-2006
the first or second period, but he paid $1,000
each on September 2, 2005, and January 12,
2006, for the third and fourth periods. Because
the total of his withholding and estimated tax
payments, $5,228 ($3,228 + $1,000 + $1,000),
was less than 90% of his 2005 tax ($6,328), and
was also less than his 2004 tax ($6,116), Ben
knows he owes a penalty for underpayment of
estimated tax. He decides to figure the penalty
on Form 2210 and pay it with his $1,803 tax
balance ($7,031 − $5,228) when he files his tax
return on April 17, 2006.
Ben’s required annual payment (Part I, line
9) is $6,116. Because his income and withhold-
ing were distributed evenly throughout the year,
Ben enters one-fourth of his required annual
payment, $1,529, in each column of line 18 (see
Figure 4-B, Part IV, Section A, at the end of this
chapter). On line 19, he enters one-fourth of his
withholding, $807 in the first two columns and
$1,807 ($807 plus $1,000 estimated tax pay-
ment) in the last two columns.
Ben has an underpayment (line 25) for each
payment period even though his withholding and
estimated tax payments for the third and fourth
periods were more than his required install-
ments (line 18). This is because the estimated
tax payments made in the third and fourth peri-
ods are first applied to underpayments for the
earlier periods.
Annualized Income Installment
Method (Schedule AI)
If you did not receive your income evenly
throughout the year (for example, your income
from a repair shop you operated was much
larger in the summer than it was during the rest
of the year), you may be able to lower or elimi-
nate your penalty by figuring your underpayment
using the annualized income installment
method. Under this method, your required in-
stallment (line 18) for one or more payment
periods may be less than one-fourth of your
required annual payment.
To figure your underpayment using this
method, complete Schedule AI of Form 2210
(see Figure 4-C, page 59, for an example). The
schedule annualizes your tax at the end of each
payment period based on your income, deduc-
tions, and other items relating to events that
occurred since the beginning of the tax year
through the end of the period.
If you use the annualized income installment
method, you must check box C in Part II of Form
2210. You also must attach Form 2210 and
Schedule AI to your return.
If you use Schedule AI for any pay-
! ment due date, you must use it for all
CAUTION payment due dates.
Completing Schedule AI. Follow your Form
2210 instructions to complete Schedule AI. For
each period shown on Schedule AI, figure your
income and deductions based on your method
of accounting. If you use the cash method of
accounting (used by most people), include all
income actually or constructively received dur-
ing the period and all deductions actually paid
during the period.
Note. Each period includes amounts from
the previous period(s).
Page 51 of 67 of Publication 505
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• Period (a) includes items for January
through March.
• Period (b) includes items for January
through May.
• Period (c) includes items for January
through August.
• Period (d) includes items for the entire
year.
Example. Betty Beige’s income tax is $3,741.
Her AGI was less than $150,000. She does not
owe any other taxes nor claim any credits other
than withholding. Her required annual payment
on Form 2210, Part I, line 9, is $5,478 (the lower
of her $6,116 tax for 2004 or 90% of her $6,087
total tax for 2005).
Betty’s employer withheld $3,228 income tax
during 2005. Betty paid no estimated tax for
either the first or second period, but she paid
$1,000 each on September 2, 2005, and Janu-
ary 12, 2006, for the third and fourth periods.
Betty did not receive her income evenly
throughout the year. Therefore, she decides to
figure her required installment for each period
(Part IV, line 18) using the annualized income
installment method. To use this method, Betty
completes Schedule AI before starting Part IV.
Figure 4-C, at the end of the chapter, shows
Betty’s filled-in Schedule AI and Part IV, Section
A.
Betty’s wages during 2005 were $21,000
($1,750 a month). Her net earnings from a busi-
ness she started during the year were $16,600,
received as follows.
April through May . . . . . . . . . . . . . . . $4,600
June through August . . . . . . . . . . . . . 4,000
September through December . . . . . . . 8,000
Self-employment tax and deduction.
Before Betty can figure her adjusted gross in-
come for each period (Schedule AI, line 1), she
must figure her deduction for self-employment
tax for each period. She completes Schedule AI,
Part II, first (see Figure 4-C at the end of this
chapter). She figures the deduction for self-em-
ployment tax by dividing the amounts on line 34
by the annualization amounts for each period.
The annualization amounts are 8 for the first
period, 4.8 for the second period, 3 for the third
period, and 2 for the fourth period.
Betty had no self-employment income for the
first period, so she leaves the lines in that col-
umn blank. Her self-employment income was
$4,600 for the second period, $8,600 ($4,600 +
$4,000) for the third period, and $16,600
($8,600 + $8,000) for the fourth period. She
multiplies each amount by 92.35% (.9235) to
find the amounts to enter on line 26. She then
fills out the rest of Part II. See Figure 4-C at the
end of the chapter.
Adjusted gross income. Betty figures the
amounts to enter on Schedule AI, line 1, as
follows.
Column (a) — 1/1/05 to 3/31/05:
$1,750 per month × 3 months . . . . . . . $ 5,250
Column (b) — 1/1/05 to 5/31/05:
$1,750 per month × 5 months . . . . . . . $ 8,750
Plus: Self-employment income
through 5/31/05 . . . . . . . . . . 4,600
Less: Self-employment tax deduction
($1,560 ÷ 4.8) . . . . . . . . . . . . (325)
$13,025
Column (c) — 1/1/05 to 8/31/05:
$1,750 per month × 8 months . . . . . . . $14,000
Plus: Self-employment income
through 8/31/05 . . . . . . . . . . 8,600
Less: Self-employment tax deduction
($1,822 ÷ 3) . . . . . . . . . . . . . (607)
$21,993
Column (d) — 1/1/05 to 12/31/05:
$1,750 per month × 12 months . . . . . . $21,000
Plus: Self-employment income
through 12/31/05 . . . . . . . . . . 16,600
Less: Self-employment tax deduction
($2,346 ÷ 2) . . . . . . . . . . . . . (1,173)
$36,427
Itemized deductions. Betty had $6,000 in
itemized deductions for 2005. She divided them
by period in the following manner.
• 1st period ($1,500). $250 a month with-
held in state and local taxes and $250 a
month in mortgage interest × 3 months.
• 2nd period ($2,500). $250 a month with-
held in state and local taxes and $250 a
month in mortgage interest × 5 months.
• 3rd period ($4,000). $250 a month with-
held in state and local taxes and $250 a
month in mortgage interest × 8 months.
• 4th period ($6,000). $250 a month with-
held in state and local taxes and $250 a
month in mortgage interest × 12 months.
She enters each amount on line 4 in the proper
column for that period.
Now that Betty has figured her entries for lines
1 and 4, she can complete the rest of Schedule
AI to determine the amounts to put on Form
2210, line 18. Figure 4-C, at the end of the
chapter, shows her completed Part I.
Underpayment. Betty then figures her un-
derpayment in Part IV, Section A (see Figure
4-C at the end of the chapter). She finds that she
overpaid her estimated tax for the first and third
payment periods, but she underpaid her esti-
mated tax for the other two periods.
Figuring Your Penalty
(Section B)
Figure the amount of your penalty in Section B
following the instructions. The penalty is im-
posed on each underpayment shown on Section
A, line 25, for the number of days that it re-
mained unpaid. (You may find it helpful to show
the date of payment beside each amount on line
25.)
There are two rate periods to figure the pen-
alty. Use Rate Period 1 (lines 27 and 28) to
apply the 6% rate in effect between April 16,
2005, and September 30, 2005. Use Rate Pe-
riod 2 (lines 29 and 30) to apply the 7% rate in
effect between October 1, 2005, and April 15,
2006.
Aid for counting days. Table 4-1, on the next
page, provides a simple method to count the
number of days between payment dates or be-
tween a due date and a payment date.
1. Find the number for the date the payment
was due by going across to the column of
the month the payment was due and mov-
ing down the column to the due date.
2. In the same manner, find the number for
the date the payment was made.
Chapter 4
13:46 - 5-APR-2006
3. Subtract the due date “number” from the
payment date “number.”
For example, if a payment was due on June
15 (61), but was not paid until November 4
(203), the payment was 142 (203 − 61) days
late.
Payments. Before completing Section B,
make a list of the payments you made after the
due date (or the last day payments could be
made on time) for the earliest payment period an
underpayment occurred. For example, if you
had an underpayment for the first payment pe-
riod, list your payments after April 15, 2005. You
can use the tables in the Form 2210 instructions
to make your list. Follow those instructions for
listing income tax withheld and payments made
with your return. Use the list to determine when
each underpayment was paid.
Underpayment paid in two or more parts. If
an underpayment was paid in two or more parts
on different dates, you must figure the penalty
separately for each part. You may find it helpful
to show the underpayment on Section A, line 25,
broken down into the amounts paid on different
dates. See Figure 4-B, at the end of this chapter,
for an example of this.
Figuring the penalty. For each underpay-
ment in Part IV, columns (a) – (d), figure the
penalty by:
1. Determining the date(s) it was paid,
2. Determining the number of days between
the due date and the payment date(s), and
3. Multiplying the amount of underpayment
by the number of days unpaid and the ap-
propriate penalty rate.
If an underpayment remained unpaid for
more than one rate period, the penalty on that
underpayment will be figured using more than
one rate.
Use lines 27 and 29 to figure the number of
days the underpayment remained unpaid. (Also
see Table 4-1.) Use lines 28 and 30 to figure the
actual penalty amount by applying the rate
against the underpayment for the number of
days it remained unpaid.
If an underpayment remained unpaid for the
entire period, use Table 4-2 to determine the
number of days to enter for each period.
Table 4-2. Chart of Total Days
Column Column Column Column
(a) (b) (c) (d)
line 27 168 107 15 NA
line 29 197 197 197 90
To figure the total penalty, add the amounts
on lines 28 and 30 in all columns. Enter the total
on line 31.
Example 1. In the previous example for Ben
Brown (see Regular Installment Method, page
50) he determined that he had an underpayment
for all four payment periods. See Ben’s com-
pleted Section A in Figure 4-B at the end of this
chapter.
Ben’s 2005 tax is $7,031. His minimum re-
quired payment for each period is $1,529
($6,116 ÷ 4). His $3,228 withholding is consid-
ered paid in four equal installments of $807, one
on each payment due date. Therefore, he must
Underpayment Penalty for 2005 Page 51
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Table 4-1. Calendar To Determine the Number of Days a Payment Is Late

Instructions. Use this table with Form 2210 if you are completing Part IV, Section B. First, find the number for the payment
due date by going across to the column of the month the payment was due and moving down the column to the due date.
Then, in the same manner, find the number for the date the payment was made. Finally, subtract the due date number from
the payment date number. The result is the number of days the payment is late.

Example. The payment due date is June 15 (61). The payment was made on November 4 (203). The payment is 142 days
late (203 − 61).

Tax Year 2005

Day of 2005 2005 2005 2005 2005 2005 2005 2005 2005 2006 2006 2006 2006
Month April May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr.
1 16 47 77 108 139 169 200 230 261 292 320 351
2 17 48 78 109 140 170 201 231 262 293 321 352
3 18 49 79 110 141 171 202 232 263 294 322 353
4 19 50 80 111 142 172 203 233 264 295 323 354
5 20 51 81 112 143 173 204 234 265 296 324 355

6 21 52 82 113 144 174 205 235 266 297 325 356

7 22 53 83 114 145 175 206 236 267 298 326 357
8 23 54 84 115 146 176 207 237 268 299 327 358
9 24 55 85 116 147 177 208 238 269 300 328 359
10 25 56 86 117 148 178 209 239 270 301 329 360

11 26 57 87 118 149 179 210 240 271 302 330 361

12 27 58 88 119 150 180 211 241 272 303 331 362
13 28 59 89 120 151 181 212 242 273 304 332 363
14 29 60 90 121 152 182 213 243 274 305 333 364
15 0 30 61 91 122 153 183 214 244 275 306 334 365

16 1 31 62 92 123 154 184 215 245 276 307 335

17 2 32 63 93 124 155 185 216 246 277 308 336
18 3 33 64 94 125 156 186 217 247 278 309 337
19 4 34 65 95 126 157 187 218 248 279 310 338
20 5 35 66 96 127 158 188 219 249 280 311 339

21 6 36 67 97 128 159 189 220 250 281 312 340

22 7 37 68 98 129 160 190 221 251 282 313 341
23 8 38 69 99 130 161 191 222 252 283 314 342
24 9 39 70 100 131 162 192 223 253 284 315 343
25 10 40 71 101 132 163 193 224 254 285 316 344

26 11 41 72 102 133 164 194 225 255 286 317 345

27 12 42 73 103 134 165 195 226 256 287 318 346
28 13 43 74 104 135 166 196 227 257 288 319 347
29 14 44 75 105 136 167 197 228 258 289 348
30 15 45 76 106 137 168 198 229 259 290 349

31 46 107 138 199 260 291 350

make estimated tax payments of $722 ($1,529 − April 15, 20051 . . . . . . . . . . . . . . $ 807 2005. The $722 remained unpaid 61 days (April
$807) each period. Ben made estimated tax June 15, 20051 . . . . . . . . . . . . . . 807 16 through June 15, 2005). Ben enters “61” on
payments of $1,000 on September 2, 2005, and September 2, 20052 . . . . . . . . . . . 1,000 line 27 and figures this part of the penalty on line
$1,000 on January 12, 2006. He plans to file his September 15, 20051 . . . . . . . . . . 807 28 ($722 × (61 ÷ 365) × .06 = $7.24). See his
return and pay his $1,803 tax balance ($7,031 January 12, 20062 . . . . . . . . . . . . 1,000 completed Section B in Figure 4-B at the end of
tax – $5,228 withholding and estimated tax pay- January 15, 20061 . . . . . . . . . . . . 807 this chapter.
ments) on April 15, 2006. Therefore, he is con- April 15, 20063 . . . . . . . . . . . . . . 1,803 Penalty for second payment period (June
sidered to have made the following payments for 1 One-fourth of withholding 15, 2005) — column (b). Ben figures his sec-
tax year 2005. 2 Estimated tax payment ond period underpayment as follows.
3 Tax balance paid with return

1. Of the $807 he paid for the second period,

Penalty for first payment period (April 15, $722 is applied to the underpayment re-
2005) — column (a). Ben’s $722 underpay- maining from the first period.
ment for the first payment period was paid by
applying $722 of his $807 payment on June 15,

Page 52 Chapter 4 Underpayment Penalty for 2005

Page 53 of 67 of Publication 505
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2. That leaves $85 ($807 – $722) to apply to
his second period required installment of
$1,529.
3. The result, $1,444 ($1,529 − $85), is Ben’s
underpayment for the second period.
The $1,444 underpayment is paid in two
parts by applying the $1,000 paid on September
2 and $444 of his $807 September 15 payment.
To help him figure his penalty, Ben shows each
part of the underpayment paid on different dates
on line 25.
$1,000 of the underpayment remained un-
paid for 79 days (June 16 through September 2)
and $444 remained unpaid for 92 days (June 16
through September 15). Ben enters “79” and
“92” on line 27, column (b). He shows the result
of both penalty computations on line 28 (see
Figure 4-B at the end of this chapter).
Penalty for third payment period (Septem-
ber 15, 2005) — column (c). Ben figures his
third period underpayment as follows.
1. Of the $1,807 he paid for the third period,
$1,444 is applied to the underpayment re-
maining from the second period.
2. That leaves $363 ($1,807 − $1,444) to ap-
ply to his third period required installment
of $1,529.
3. The result, $1,166 ($1,529 − $363) is
Ben’s underpayment for the third period.
The $1,166 underpayment is paid in two
parts by applying his $1,000 payment on Janu-
ary 12, 2006, and $166 of his $807 payment on
January 15. On line 25, Ben shows each part of
the underpayment paid on different dates.
For Rate Period 1, the entire underpayment
remained unpaid 15 days (September 16
through September 30). Ben enters “15” on line
27. He shows the result of the penalty computa-
tion on line 28 (see Figure 4-B at the end of this
chapter).
For Rate Period 2, $1,000 of the underpay-
ment remained unpaid for 104 days (September
16 through January 12) and $166 remained un-
paid for 107 days (September 16 through Janu-
ary 15). Ben enters “104” and “107” on line 29.
He shows the result of both penalty computa-
tions on line 30 (see Figure 4-B at the end of this
chapter).
Penalty for fourth payment period (Janu-
ary 15, 2006) — column (d). Ben figures his
fourth period underpayment as follows.
1. Of the $1,807 he paid for the fourth period,
$1,166 is applied to the underpayment re-
maining from the third period.
2. That leaves $641 ($1,807 − $1,166) to ap-
ply to his fourth period required installment
of $1,529.
3. The result, $888 ($1,529 − $641) is Ben’s
underpayment for the fourth period.
The $888 underpayment was paid April 15,
2006, with his tax return. The $888 remained
unpaid 90 days (January 16 through April 15,
2006). Ben enters that number on line 29 and
shows the result of the penalty computation on
line 30 (see Figure 4-B at the end of this chap-
ter).
Total penalty. Ben’s total penalty for 2005
on line 31 is $68.51, the total of all amounts on
lines 28 and 30 in all columns. Ben enters that
amount on line 76 of his Form 1040. He also
adds $69 to his $1,803 tax balance and enters
the $1,872 total on line 75. He files his return on
April 17 and includes a check for $1,872. He
keeps his completed Form 2210 for his records.
Example 2. In the previous example for Betty
Beige (see Completing Schedule AI, page 50),
her first underpayment was for the second pay-
ment period. See Betty’s completed Section A in
Figure 4-C, at the end of this chapter.
This example illustrates completion of Part
IV, Section B, of Betty’s Form 2210 under the
annualized income installment method.
Betty made the following payments for tax
year 2005.
April 15, 20051 . . . . . . . . . . . .
June 15, 20051 . . . . . . . . . . . .
September 2, 20052 . . . . . . . . .
September 15, 20051 . . . . . . . .
January 12, 20062 . . . . . . . . . .
January 15, 20061 . . . . . . . . . .
April 15, 20063 . . . . . . . . . . . .
1 One-fourth of withholding
2
Estimated tax payment
3 Tax balance paid with return
Penalty for second payment period — col-
umn (b). Betty’s $414 underpayment for the
second payment period was paid by applying
$414 of her $1,000 September 2, 2005, pay-
ment. To help her figure her penalty, Betty
shows the date the underpayment was paid on
line 25.
The entire underpayment remained unpaid
for 79 days (June 16 through September 2).
Betty enters “79” on line 27 and shows the result
of the penalty computation on line 28 (see Fig-
ure 4-C at the end of this chapter).
Penalty for fourth payment period — col-
umn (d). Betty’s $231 underpayment for the
fourth payment period was paid on April 15,
2006, with her tax return. The entire amount
remained unpaid 90 days (January 16 through
April 15, 2006). Betty enters that number on line
29. She shows the result of the penalty compu-
tation on line 30 (see Figure 4-C at the end of
this chapter).
Total penalty. Betty’s total penalty for 2005
on line 31 is $9.37, the total of all amounts on
lines 28 and 30 in all columns. Betty enters that
amount on line 76 of her Form 1040. She also
adds $9 to her $859 tax balance and enters the
$868 total on line 75. She files her return on April
15 and includes a check for $868. Because she
used the annualized income installment
method, she must attach Form 2210, including
Schedule AI, to her return and check box C in
Part II.
Farmers and
Fishermen
If you are a farmer or fisherman, the following
special rules for underpayment of estimated tax
apply to you.
1. The penalty for underpaying your 2005 es-
timated tax will not apply if you file your
13:46 - 5-APR-2006
return and pay all the tax due by March 1,
2006. If you are a fiscal year taxpayer, the
penalty will not apply if you file your return
and pay the tax due by the first day of the
third month after the end of your tax year.
2. Any penalty you owe for underpaying your
2005 estimated tax will be figured from one
payment due date, January 15, 2006.
3. The underpayment penalty for 2005 is fig-
ured on the difference between the amount
of 2005 withholding plus estimated tax
paid by the due date and the smaller of:
a. 100% of the tax shown on your 2004
return, or
b. 662/3% (rather than 90%) of your 2005
tax.
. . $ 807
. . 807 Even if these special rules apply to you, you
. . 1,000 will not owe the penalty if you meet either of
. . 807 the two conditions discussed earlier under Ex-
. . 1,000 ceptions.
. . 807 See chapter 2 to see whether you are a
. . 859 farmer or fisherman who is eligible for these
special rules.
Form 2210-F. Use Form 2210-F to figure any
underpayment penalty. Do not attach it to your
return unless you check box 1a or box 1b. Also,
if neither box applies to you and you owe a
penalty, you do not need to complete Form
2210-F. The IRS can figure your penalty and
send you a bill.
Waiver of Penalty
The IRS can waive the penalty for underpay-
ment if either of the following applies.
1. You did not make a payment because of a
casualty, disaster, or other unusual circum-
stance and it would be inequitable to im-
pose the penalty.
2. You retired (after reaching age 62) or be-
came disabled in 2004 or 2005 and both
the following requirements are met.
a. You had a reasonable cause for not
making the payment.
b. Your underpayment was not due to will-
ful neglect.
How to request a waiver. To request a
waiver, you must complete Form 2210 as fol-
lows.
1. Check box A or B in Part II.
2. If you checked box A:
a. Complete only page 1 of Form 2210.
b. Submit Form 2210 with your tax return.
3. If you checked box B:
a. Complete line 1 through line 16 (or
through line 30 if you use the regular
method) without regard to the waiver.
b. Write the amount you want waived in
parentheses on the dotted line next to
line 17 (line 31 for the regular method).
Chapter 4 Underpayment Penalty for 2005 Page 53
Page 54 of 67 of Publication 505
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c. Subtract this amount from the total pen-
alty you figured without regard to the
waiver. Enter the result on line 17 (line
31 for the regular method).
4. Attach Form 2210 and a statement to your
return explaining the reasons you were un-
able to meet the estimated tax require-
ments and the time period for which you
are requesting a waiver.
5. If you are requesting a penalty waiver due
to retirement or disability, attach documen-
tation that shows your retirement date (and
your age on that date) or the date you
became disabled.
6. If you are requesting a penalty waiver due
to a casualty, disaster, or other unusual
circumstance, attach documentation such
as police and insurance company reports.
The IRS will review the information you pro-
vide and will decide whether or not to grant your
request for a waiver.
Page 54 Chapter 4 Underpayment Penalty for 2005
Farmers and fishermen. To request a
waiver, you must complete Form 2210-F as fol-
lows.
1. Check box 1a in Part I.
2. Complete line 2 through line 19 without
regard to the waiver.
3. Write the amount you want waived in pa-
rentheses on the dotted line next to line
20.
4. Subtract this amount from the total penalty
you figured without regard to the waiver.
Enter the result on line 20.
5. Attach Form 2210-F and a statement to
your return explaining the reasons you
were unable to meet the estimated tax re-
quirements.
13:46 - 5-APR-2006
6. If you are requesting a penalty waiver due
to a casualty, disaster, or other unusual
circumstance, attach documentation such
as police and insurance company reports.
7. If you are requesting a penalty waiver due
to retirement or disability, attach documen-
tation that shows your retirement date (and
your age on that date) or the date you
became disabled.
The IRS will review the information you pro-
vide and will decide whether or not to grant your
request for a waiver.
Page 55 of 67 of Publication 505 13:46 - 5-APR-2006

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Figure 4-A. Form 2210—Illustrated (Ivy Fields)

2210
OMB No. 1545-0140
Form
Underpayment of
Estimated Tax by Individuals, Estates, and Trusts
Department of the Treasury
䊳 See separate instructions.
2005
Attachment
Internal Revenue Service 䊳 Attach to Form 1040, 1040A, 1040NR, 1040NR-EZ, or 1041. Sequence No. 06
Name(s) shown on tax return Identifying number
Ivy Fields 222 - 00 - 2222

Do You Have To File Form 2210?

Yes
Complete lines 1 through 7 below. Is line 7 less than $1,000? 䊳 Do not file Form 2210. You do not owe a penalty.

No
䊲
Yes You do not owe a penalty. Do not file Form 2210 (but
Complete lines 8 and 9 below. Is line 6 equal to or more 䊳 if box E below applies, you must file page 1 of
than line 9? Form 2210 below).
No
䊲
Yes
You may owe a penalty. Does any box in Part II below apply? 䊳 You must file Form 2210. Does box B, C, or D apply?

No Yes
No 䊳 You must figure your penalty.

䊲
䊳

Do not file Form 2210. You are not required to figure
your penalty because the IRS will figure it and send
you a bill for any unpaid amount. If you want to figure
it, you may use Part III or Part IV as a worksheet and
enter your penalty amount on your tax return, but do
not file Form 2210.
You are not required to figure your penalty because
the IRS will figure it and send you a bill for any unpaid
amount. If you want to figure it, you may use Part III
or Part IV as a worksheet and enter your penalty
amount on your tax return, but file only page 1 of
Form 2210.

Part I Required Annual Payment (see page 2 of the instructions)

1 Enter your 2005 tax after credits from Form 1040, line 57 (or comparable line of your return) 1 11,000
2 Other taxes, including self-employment tax (see page 2 of the instructions) 2
3 Refundable credits. Enter the total of your earned income credit, additional child tax credit, credit
for federal tax paid on fuels, and health coverage tax credit for eligible individuals 3 ( )
4 Current year tax. Combine lines 1, 2, and 3. If less than $1,000, see page 3 of the instructions 4 11,000
5 Multiply line 4 by 90% (.90) 5 9,900
6 Withholding taxes. Do not include estimated tax payments. See page 3 of the instructions 6 1,600
7 Subtract line 6 from line 4. If less than $1,000, you do not owe a penalty; do not file Form 2210 7 9,400
8 Maximum required annual payment based on prior year’s tax (see page 3 of the instructions) 8 10,000
9 Required annual payment. Enter the smaller of line 5 or line 8 9 9,900
Next: Is line 9 more than line 6?
No. You do not owe a penalty. Do not file Form 2210 unless box E below applies.
X Yes. You may owe a penalty, but do not file Form 2210 unless one or more boxes in Part II below applies.
● If box B, C, or D applies, you must figure your penalty and file Form 2210.
● If only box A or E (or both) applies, file only page 1 of Form 2210. You are not required to figure your penalty; the IRS
will figure it and send you a bill for any unpaid amount. If you want to figure your penalty, you may use Part III or IV as
a worksheet and enter your penalty on your tax return, but file only page 1 of Form 2210.
Part II Reasons for Filing. Check applicable boxes. If none apply, do not file Form 2210.
A You request a waiver (see page 2 of the instructions) of your entire penalty. You must check this box and file page 1
of Form 2210, but you are not required to figure your penalty.
B You request a waiver (see page 2 of the instructions) of part of your penalty. You must figure your penalty and waiver
amount and file Form 2210.
C Your income varied during the year and your penalty is reduced or eliminated when figured using the annualized
income installment method. You must figure the penalty using Schedule Al and file Form 2210.
D Your penalty is lower when figured by treating the federal income tax withheld from your wages as paid on the
dates it was actually withheld, instead of in equal amounts on the payment due dates. You must figure your penalty
and file Form 2210.
E You filed or are filing a joint return for either 2004 or 2005, but not for both years, and line 8 above is smaller than
line 5 above. You must file page 1 of Form 2210, but you are not required to figure your penalty (unless box B,
C, or D applies).
For Paperwork Reduction Act Notice, see page 6 of separate instructions. Cat. No. 11744P Form 2210 (2005)

Chapter 4 Underpayment Penalty for 2005 Page 55

Page 56 of 67 of Publication 505 13:46 - 5-APR-2006

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Figure 4-A. Form 2210—Illustrated (Ivy Fields) (Continued)

Form 2210 (2005) Page 2

Part III Short Method
You may use the short method if:
● You made no estimated tax payments (or your only payments were
withheld federal income tax), or
● You paid estimated tax in equal amounts on your due dates.
You must use the regular method (Part IV) instead of the short method if:
You do not need to ● You made any estimated tax payments late,
TIP file Form 2210 unless ● You checked box C or D in Part II, or
you checked a box in ● You are filing Form 1040NR or 1040NR-EZ and you did not receive
Part II on page 1. wages as an employee subject to U.S. income tax withholding.
Note: If any payment was made earlier than the due date, you may use the
short method, but using it may cause you to pay a larger penalty than the
regular method. If the payment was only a few days early, the difference is
likely to be small.

10 Enter the amount from Form 2210, line 9 10 9,900

11 Enter the amount, if any, from Form 2210, line 6 11 1,600

12 Enter the total amount, if any, of estimated tax payments you made 12 6,800

13 Add lines 11 and 12 13 8,400

14 Total underpayment for year. Subtract line 13 from line 10. If zero or less, stop here; you do
not owe the penalty. Do not file Form 2210 unless you checked box E on page 1 14 1,500

15 Multiply line 14 by .04457 (use the factor shown in the instructions if you are eligible for hurricane relief) 15 67
16 ● If the amount on line 14 was paid on or after 4/15/06, enter -0-.
● If the amount on line 14 was paid before 4/15/06, make the following computation to find the
amount to enter on line 16. Amount on Number of days paid
line 14 ⫻ before 4/15/06 ⫻ .00019 16 9
17 Penalty. Subtract line 16 from line 15. Enter the result here and on Form 1040, line 76; Form
1040A, line 48; Form 1040NR, line 74; Form 1040NR-EZ, line 26; or Form 1041, line 26 䊳 17 58
Form 2210 (2005)

Page 56 Chapter 4 Underpayment Penalty for 2005

Page 57 of 67 of Publication 505 13:46 - 5-APR-2006

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Figure 4-B. Regular Installment Method—Illustrated (Ben Brown)

2210
OMB No. 1545-0140
Form
Underpayment of

Department of the Treasury

Estimated Tax by Individuals, Estates, and Trusts
䊳 See separate instructions.
2005
Attachment
Internal Revenue Service 䊳 Attach to Form 1040, 1040A, 1040NR, 1040NR-EZ, or 1041. Sequence No. 06
Name(s) shown on tax return Identifying number
Ben Brown 333 - 00 - 3333

Do You Have To File Form 2210?

Yes
Complete lines 1 through 7 below. Is line 7 less than $1,000? 䊳 Do not file Form 2210. You do not owe a penalty.

No
䊲
Yes You do not owe a penalty. Do not file Form 2210 (but
Complete lines 8 and 9 below. Is line 6 equal to or more 䊳 if box E below applies, you must file page 1 of
than line 9? Form 2210 below).
No
䊲
Yes
You may owe a penalty. Does any box in Part II below apply? 䊳 You must file Form 2210. Does box B, C, or D apply?

No Yes
No 䊳 You must figure your penalty.

䊲
䊳

Do not file Form 2210. You are not required to figure
your penalty because the IRS will figure it and send
you a bill for any unpaid amount. If you want to figure
it, you may use Part III or Part IV as a worksheet and
enter your penalty amount on your tax return, but do
not file Form 2210.
You are not required to figure your penalty because
the IRS will figure it and send you a bill for any unpaid
amount. If you want to figure it, you may use Part III
or Part IV as a worksheet and enter your penalty
amount on your tax return, but file only page 1 of
Form 2210.

Part I Required Annual Payment (see page 2 of the instructions)

1 Enter your 2005 tax after credits from Form 1040, line 57 (or comparable line of your return) 1 4,685
2 Other taxes, including self-employment tax (see page 2 of the instructions) 2 2,346
3 Refundable credits. Enter the total of your earned income credit, additional child tax credit, credit
for federal tax paid on fuels, and health coverage tax credit for eligible individuals 3 ( )
4 Current year tax. Combine lines 1, 2, and 3. If less than $1,000, see page 3 of the instructions 4 7,031
5 Multiply line 4 by 90% (.90) 5 6,328
6 Withholding taxes. Do not include estimated tax payments. See page 3 of the instructions 6 3,228
7 Subtract line 6 from line 4. If less than $1,000, you do not owe a penalty; do not file Form 2210 7 3,803
8 Maximum required annual payment based on prior year’s tax (see page 3 of the instructions) 8 6,116
9 Required annual payment. Enter the smaller of line 5 or line 8 9 6,116
Next: Is line 9 more than line 6?
No. You do not owe a penalty. Do not file Form 2210 unless box E below applies.
X Yes. You may owe a penalty, but do not file Form 2210 unless one or more boxes in Part II below applies.
● If box B, C, or D applies, you must figure your penalty and file Form 2210.
● If only box A or E (or both) applies, file only page 1 of Form 2210. You are not required to figure your penalty; the IRS
will figure it and send you a bill for any unpaid amount. If you want to figure your penalty, you may use Part III or IV as
a worksheet and enter your penalty on your tax return, but file only page 1 of Form 2210.
Part II Reasons for Filing. Check applicable boxes. If none apply, do not file Form 2210.
A You request a waiver (see page 2 of the instructions) of your entire penalty. You must check this box and file page 1
of Form 2210, but you are not required to figure your penalty.
B You request a waiver (see page 2 of the instructions) of part of your penalty. You must figure your penalty and waiver
amount and file Form 2210.
C Your income varied during the year and your penalty is reduced or eliminated when figured using the annualized
income installment method. You must figure the penalty using Schedule Al and file Form 2210.
D Your penalty is lower when figured by treating the federal income tax withheld from your wages as paid on the
dates it was actually withheld, instead of in equal amounts on the payment due dates. You must figure your penalty
and file Form 2210.
E You filed or are filing a joint return for either 2004 or 2005, but not for both years, and line 8 above is smaller than
line 5 above. You must file page 1 of Form 2210, but you are not required to figure your penalty (unless box B,
C, or D applies).
For Paperwork Reduction Act Notice, see page 6 of separate instructions. Cat. No. 11744P Form 2210 (2005)

Chapter 4 Underpayment Penalty for 2005 Page 57

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Figure 4-B. Regular Installment Method—Illustrated (Ben Brown) (Continued)

Form 2210 (2005) Page 3
Part IV Regular Method (See page 3 of the instructions if you are filing Form 1040NR or 1040NR-EZ.)
Payment Due Dates
Section A—Figure Your Underpayment (a) (b) (c) (d)
4/15/05 6/15/05 9/15/05 1/15/06

18 Required installments. If box C in Part II applies, enter

the amounts from Schedule AI, line 25. Otherwise, enter
25% (.25) of line 9, Form 2210, in each column 18 1,529 1,529 1,529 1,529
19 Estimated tax paid and tax withheld (see page 3 of
the instructions). For column (a) only, also enter the 807 807
amount from line 19 on line 23. If line 19 is equal to +1,000 +1,000
or more than line 18 for all payment periods, stop
here; you do not owe a penalty. Do not file Form
2210 unless you checked a box in Part II 19 807 807 1,807 1,807
Complete lines 20 through 26 of one column
before going to the next column.
20 Enter the amount, if any, from line 26 in previous
column 20
21 Add lines 19 and 20 21 807 1,807 1,807
22 Add the amounts on lines 24 and 25 in previous column 22 722 1,444 1,166
23 Subtract line 22 from line 21. If zero or less, enter -0-.
For column (a) only, enter the amount from line 19. 23 807 85 363 641
24 If line 23 is zero, subtract line 21 from line 22.
Otherwise, enter -0- 24 6/15 0 0 4/15
25 Underpayment. If line 18 is equal to or more than 6/15 0 9/2 1,000 1/12 1,000 4/15 0
line 23, subtract line 23 from line 18. Then go to line 9/15 444 1/15 166
20 of the next column. Otherwise, go to line 26 䊳 25 722 1,444 1,166 888
26 Overpayment. If line 23 is more than line 18, subtract line
18 from line 23. Then go to line 20 of the next column 26
Section B—Figure the Penalty (Complete lines 27 through 30 of one column before going to the next column.)
April 16, 2005—September 30, 2005 4/15/05 6/15/05 9/15/05
Rate Period 1

Days: Days: Days:

27 Number of days from the date shown above 79
line 27 to the date the amount on line 25 was
paid or 9/30/05, whichever is earlier 27 61 92 15
28 Underpayment on line 25 Number of 12.99
(see page 4 of days on line 27
⫻ ⫻ .06
the instructions) 365 䊳 28 $ 7.24 $ 6.71 $ 2.88
October 1, 2005—April 15, 2006 9/30/05 9/30/05 9/30/05 1/15/06
Rate Period 2

Days: Days: Days: Days:

29 Number of days from the date shown above 104
line 29 to the date the amount on line 25 was
paid or 4/15/06, whichever is earlier 29 107 90
30 Underpayment on line 25 Number of 19.95
(see page 4 of days on line 29
⫻ ⫻ .07
the instructions) 365 䊳 30 $ $ $ 3.41 $ 15.33
31 Penalty. Add all amounts on lines 28 and 30 in all columns. Enter the total here and on Form 1040,
line 76; Form 1040A, line 48; Form 1040NR, line 74; Form 1040NR-EZ, line 26; or Form 1041, line
26, but do not file Form 2210 unless you checked a box in Part II 䊳 31 $ 68.51
Form 2210 (2005)

Page 58 Chapter 4 Underpayment Penalty for 2005

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Figure 4-C. Annualized Income Installment Method—Illustrated (Betty Beige)

Form 2210 (2005) Page 4

Schedule AI—Annualized Income Installment Method (See pages 5 and 6 of the instructions.)
Estates and trusts, do not use the period ending dates shown to the right. (a) (b) (c) (d)
Instead, use the following: 2/28/05, 4/30/05, 7/31/05, and 11/30/05. 1/1/05–3/31/05 1/1/05–5/31/05 1/1/05–8/31/05 1/1/05–12/31/05

Part I Annualized Income Installments

1 Enter your adjusted gross income for each period (see instructions).
(Estates and trusts, enter your taxable income without your
exemption for each period.) 1 5,250 13,025 21,993 36,427
2 Annualization amounts. (Estates and trusts, see instructions.) 2 4 2.4 1.5 1
3 Annualized income. Multiply line 1 by line 2 3 21,000 31,260 32,990 36,427
4 Enter your itemized deductions for the period shown in each column.
If you do not itemize, enter -0- and skip to line 7. (Estates and trusts,
enter -0-, skip to line 9, and enter the amount from line 3 on line 9.) 4 1,500 2,500 4,000 6,000
5 Annualization amounts 5 4 2.4 1.5 1
6 Multiply line 4 by line 5 (see instructions if line 3 is more than $72,975) 6 6,000 6,000 6,000 6,000
7 In each column, enter the full amount of your standard deduction
from Form 1040, line 40, or Form 1040A, line 24 (Form 1040NR or
1040NR-EZ filers, enter -0-. Exception: Indian students and
business apprentices, enter standard deduction from Form 1040NR,
line 37, or Form 1040NR-EZ, line 11.) 7 5,000 5,000 5,000 5,000
8 Enter the larger of line 6 or line 7 8 6,000 6,000 6,000 6,000
9 Subtract line 8 from line 3 9 15,000 25,260 26,990 30,427
10 In each column, multiply $3,200 by the total number of exemptions
claimed (see instructions if line 3 is more than $109,475). (Estates
and trusts and Form 1040NR or 1040NR-EZ filers, enter the
exemption amount shown on your tax return.) 10 3,200 3,200 3,200 3,200
11 Subtract line 10 from line 9 11 11,800 22,060 23,790 27,227
12 Figure your tax on the amount on line 11 (see instructions) 12 1,409 2,946 3,201 3,719
13 Self-employment tax from line 34 below (complete Part II) 13 1,560 1,822 2,346
14 Enter other taxes for each payment period (see instructions) 14
15 Total tax. Add lines 12, 13, and 14 15 1,409 4,506 5,023 6,065
16 For each period, enter the same type of credits as allowed on Form
2210, lines 1 and 3 (see instructions) 16
17 Subtract line 16 from line 15. If zero or less, enter -0- 17 1,409 4,506 5,023 6,065
18 Applicable percentage 18 22.5% 45% 67.5% 90%
19 Multiply line 17 by line 18 19 317 2,028 3,391 5,459
Complete lines 20–25 of one column before going to the next
column.
20 Enter the total of the amounts in all previous columns of line 25 20 317 2,028 3,391
21 Subtract line 20 from line 19. If zero or less, enter -0- 21 317 1,711 1,363 2,068
22 Enter 25% (.25) of line 9 on page 1 of Form 2210 in each column 22 1,370 1,370 1,370 1,370
23 Subtract line 25 of the previous column from line 24 of that
column 23 1,053 712 719
24 Add lines 22 and 23 24 1,370 2,423 2,082 2,089
25 Enter the smaller of line 21 or line 24 here and on Form 2210,
line 18 䊳 25 317 1,711 1,363 2,068
Part II Annualized Self-Employment Tax (Form 1040 filers only)
26 Net earnings from self-employment for the period (see instructions) 26 4,248 7,942 15,330
27 Prorated social security tax limit 27 $22,500 $37,500 $60,000 $90,000
28 Enter actual wages for the period subject to social security tax or
the 6.2% portion of the 7.65% railroad retirement (tier 1) tax 28 8,750 14,000 21,000
29 Subtract line 28 from line 27. If zero or less, enter -0- 29 28,750 46,000 69,000
30 Annualization amounts 30 0.496 0.2976 0.186 0.124
31 Multiply line 30 by the smaller of line 26 or line 29 31 1,264 1,477 1,901
32 Annualization amounts 32 0.116 0.0696 0.0435 0.029
33 Multiply line 26 by line 32 33 296 345 445
34 Add lines 31 and 33. Enter here and on line 13 above 䊳 34 1,560 1,822 2,346
Form 2210 (2005)

Chapter 4 Underpayment Penalty for 2005 Page 59

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Figure 4-C. Annualized Income Method—Illustrated (Betty Beige) (Continued)

Form 2210 (2005) Page 3
Part IV Regular Method (See page 3 of the instructions if you are filing Form 1040NR or 1040NR-EZ.)
Payment Due Dates
Section A—Figure Your Underpayment (a) (b) (c) (d)
4/15/05 6/15/05 9/15/05 1/15/06

18 Required installments. If box C in Part II applies, enter

the amounts from Schedule AI, line 25. Otherwise, enter
25% (.25) of line 9, Form 2210, in each column 18 317 1,711 1,363 2,068
19 Estimated tax paid and tax withheld (see page 3 of
the instructions). For column (a) only, also enter the
807 807
amount from line 19 on line 23. If line 19 is equal to +1,000 +1,000
or more than line 18 for all payment periods, stop
here; you do not owe a penalty. Do not file Form
2210 unless you checked a box in Part II 19 807 807 1,807 1,807
Complete lines 20 through 26 of one column
before going to the next column.
20 Enter the amount, if any, from line 26 in previous
column 20 490 30
21 Add lines 19 and 20 21 1,297 1,807 1,837
22 Add the amounts on lines 24 and 25 in previous column 22 0 414 0
23 Subtract line 22 from line 21. If zero or less, enter -0-.
For column (a) only, enter the amount from line 19. 23 807 1,297 1,393 1,837
24 If line 23 is zero, subtract line 21 from line 22.
24 6/15 0 0 4/15
Otherwise, enter -0-
25 Underpayment. If line 18 is equal to or more than 9/2
line 23, subtract line 23 from line 18. Then go to line
20 of the next column. Otherwise, go to line 26 䊳 25 414 231
26 Overpayment. If line 23 is more than line 18, subtract line
18 from line 23. Then go to line 20 of the next column 26 490 30
Section B—Figure the Penalty (Complete lines 27 through 30 of one column before going to the next column.)
April 16, 2005—September 30, 2005 4/15/05 6/15/05 9/15/05
Rate Period 1

Days: Days: Days:

27 Number of days from the date shown above
line 27 to the date the amount on line 25 was
27 79
paid or 9/30/05, whichever is earlier
28 Underpayment on line 25 Number of
(see page 4 of days on line 27
⫻ ⫻ .06
the instructions) 365 䊳 28 $ $ 5.38 $
October 1, 2005—April 15, 2006 9/30/05 9/30/05 9/30/05 1/15/06
Rate Period 2

Days: Days: Days: Days:

29 Number of days from the date shown above
line 29 to the date the amount on line 25 was
paid or 4/15/06, whichever is earlier 29 90
30 Underpayment on line 25 Number of
(see page 4 of days on line 29
⫻ ⫻ .07
the instructions) 365 䊳 30 $ $ $ $ 3.99
31 Penalty. Add all amounts on lines 28 and 30 in all columns. Enter the total here and on Form 1040,
line 76; Form 1040A, line 48; Form 1040NR, line 74; Form 1040NR-EZ, line 26; or Form 1041, line
26, but do not file Form 2210 unless you checked a box in Part II 䊳 31 $ 9.37
Form 2210 (2005)

Page 60 Chapter 4 Underpayment Penalty for 2005

Page 61 of 67 of Publication 505
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5.
How To Get Tax
Help
You can get help with unresolved tax issues,
order free publications and forms, ask tax ques-
tions, and get information from the IRS in sev-
eral ways. By selecting the method that is best
for you, you will have quick and easy access to
tax help.
Contacting your Taxpayer Advocate. If you
have attempted to deal with an IRS problem
unsuccessfully, you should contact your Tax-
payer Advocate.
The Taxpayer Advocate independently rep-
resents your interests and concerns within the
IRS by protecting your rights and resolving
problems that have not been fixed through nor-
mal channels. While Taxpayer Advocates can-
not change the tax law or make a technical tax
decision, they can clear up problems that re-
sulted from previous contacts and ensure that
your case is given a complete and impartial
review.
To contact your Taxpayer Advocate:
• Call the Taxpayer Advocate toll free at
1-877-777-4778.
• Call, write, or fax the Taxpayer Advocate
office in your area.
• Call 1-800-829-4059 if you are a
TTY/TDD user.
• Visit www.irs.gov/advocate.
For more information, see Publication 1546,
How To Get Help With Unresolved Tax
Problems (now available in Chinese, Korean,
Russian, and Vietnamese, in addition to English
and Spanish).
Free tax services. To find out what services
are available, get Publication 910, IRS Guide to
Free Tax Services. It contains a list of free tax
publications and an index of tax topics. It also
describes other free tax information services,
including tax education and assistance pro-
grams and a list of TeleTax topics.
Internet. You can access the IRS
website 24 hours a day, 7 days a
week, at www.irs.gov to:
• E-file your return. Find out about com-
mercial tax preparation and e-file serv-
ices available free to eligible taxpayers.
• Check the status of your 2005 refund.
Click on Where’s My Refund. Be sure to
wait at least 6 weeks from the date you
filed your return (3 weeks if you filed
electronically). Have your 2005 tax return
available because you will need to know
your social security number, your filing
status, and the exact whole dollar
amount of your refund.
• Download forms, instructions, and publi-
cations.
• Order IRS products online.
• Research your tax questions online.
• Search publications online by topic or
keyword.
• View Internal Revenue Bulletins (IRBs)
published in the last few years.
• Figure your withholding allowances using
our Form W-4 calculator.
• Sign up to receive local and national tax
news by email.
• Get information on starting and operating
a small business.
Phone. Many services are available
by phone.
• Ordering forms, instructions, and publica-
tions. Call 1-800-829-3676 to order
current-year forms, instructions, and pub-
lications and prior-year forms and instruc-
tions. You should receive your order
within 10 days.
• Asking tax questions. Call the IRS with
your tax questions at 1-800-829-1040.
• Solving problems. You can get
face-to-face help solving tax problems
every business day in IRS Taxpayer As-
sistance Centers. An employee can ex-
plain IRS letters, request adjustments to
your account, or help you set up a pay-
ment plan. Call your local Taxpayer As-
sistance Center for an appointment. To
find the number, go to
www.irs.gov/localcontacts or look in the
phone book under United States Govern-
ment, Internal Revenue Service.
• TTY/TDD equipment. If you have access
to TTY/TDD equipment, call
1-800-829-4059 to ask tax questions or
to order forms and publications.
• TeleTax topics. Call 1-800-829-4477 and
press 2 to listen to pre-recorded
messages covering various tax topics.
• Refund information. If you would like to
check the status of your 2005 refund, call
1-800-829-4477 and press 1 for auto-
mated refund information or call
1-800-829-1954. Be sure to wait at least
6 weeks from the date you filed your re-
turn (3 weeks if you filed electronically).
Have your 2005 tax return available be-
cause you will need to know your social
security number, your filing status, and
the exact whole dollar amount of your
refund.
Evaluating the quality of our telephone serv-
ices. To ensure that IRS representatives give
accurate, courteous, and professional answers,
we use several methods to evaluate the quality
of our telephone services. One method is for a
second IRS representative to sometimes listen
in on or record telephone calls. Another is to ask
some callers to complete a short survey at the
end of the call.
Walk-in. Many products and services
are available on a walk-in basis.
• Products. You can walk in to many post
offices, libraries, and IRS offices to pick
up certain forms, instructions, and publi-
cations. Some IRS offices, libraries, gro-
13:46 - 5-APR-2006
cery stores, copy centers, city and county
government offices, credit unions, and of-
fice supply stores have a collection of
products available to print from a
CD-ROM or photocopy from reproducible
proofs. Also, some IRS offices and librar-
ies have the Internal Revenue Code, reg-
ulations, Internal Revenue Bulletins, and
Cumulative Bulletins available for re-
search purposes.
• Services. You can walk in to your local
Taxpayer Assistance Center every busi-
ness day for personal, face-to-face tax
help. An employee can explain IRS let-
ters, request adjustments to your tax ac-
count, or help you set up a payment plan.
If you need to resolve a tax problem,
have questions about how the tax law
applies to your individual tax return, or
you’re more comfortable talking with
someone in person, visit your local Tax-
payer Assistance Center where you can
spread out your records and talk with an
IRS representative face-to-face. No ap-
pointment is necessary, but if you prefer,
you can call your local Center and leave
a message requesting an appointment to
resolve a tax account issue. A represen-
tative will call you back within 2 business
days to schedule an in-person appoint-
ment at your convenience. To find the
number, go to www.irs.gov/localcontacts
or look in the phone book under United
States Government, Internal Revenue
Service.
Mail. You can send your order for
forms, instructions, and publications
to the address below and receive a
response within 10 business days after your
request is received.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
CD-ROM for tax products. You can
order Publication 1796, IRS Tax
Products CD-ROM, and obtain:
• A CD that is released twice so you have
the latest products. The first release
ships in late December and the final re-
lease ships in late February.
• Current-year forms, instructions, and
publications.
• Prior-year forms, instructions, and publi-
cations.
• Tax Map: an electronic research tool and
finding aid.
• Tax law frequently asked questions
(FAQs).
• Tax Topics from the IRS telephone re-
sponse system.
• Fill-in, print, and save features for most
tax forms.
• Internal Revenue Bulletins.
• Toll-free and email technical support.
Buy the CD-ROM from National Technical Infor-
mation Service (NTIS) at www.irs.gov/cdorders
for $25 (no handling fee) or call 1-877-233-6767
toll free to buy the CD-ROM for $25 (plus a $5
handling fee).
Chapter 5 How To Get Tax Help Page 61
Page 62 of 67 of Publication 505
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CD-ROM for small businesses.
Publication 3207, The Small Business
Resource Guide CD-ROM for 2005,
has a new look and enhanced navigation fea-
tures. This year’s CD includes:
• Helpful information, such as how to pre-
pare a business plan, find financing for
your business, and much more.
Page 62 Chapter 5 How To Get Tax Help
• All the business tax forms, instructions,
and publications needed to successfully
manage a business.
• Tax law changes for 2005.
• IRS Tax Map to help you find forms, in-
structions, and publications by searching
on a keyword or topic.
13:46 - 5-APR-2006
• Web links to various government agen-
cies, business associations, and IRS or-
ganizations.
• “Rate the Product” survey — your oppor-
tunity to suggest changes for future edi-
tions.
An updated version of this CD is available each
year in early April. You can get a free copy by
calling 1-800-829-3676 or by visiting
www.irs.gov/smallbiz.
Page 63 of 67 of Publication 505
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To help us develop a more useful index, please let us know if you have ideas for index entries.
Index See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
A Supplemental wages . . . . . . . 13
Address change . . . . . . . . . . . . . 28
Adjusted gross income (AGI):
Annualized AGI . . . . . . . . . . . . 30
Deductions and Adjustments
Worksheet . . . . . . . . . . . . . . . . 7
Expected AGI . . . . . . . . . . 22, 29
Adjustments to income:
Estimated tax . . . . . . . . . . . . . . 22
Withholding allowances . . . . . . 7
Worksheet instructions . . . . 6-8
Age 65 or older:
withholding
withholding . . . . . . . . . . . . . . 13
Aliens (See Nonresident aliens)
Amended returns . . . . . . . . 43, 48
Annualized income installment
method . . . . . . . . . . . . . . . . . . . 29
tax
tax . . . . . . . . . . . . . . . . . . . . . . 39
Estimated tax . . . . . . . . . . . . . . 25
Form 2210 . . . . . . . . . . . . . . . . . 50
Underpayment penalty . . . . . . 50
Annuities . . . . . . . . . . . . . . . . . 15-16
Assistance (See Tax help)
B payments
Backup withholding . . . . . . . . . 17
tax
tax . . . . . . . . . . . . . . . . . . . . . . 44
Blind persons:
withholding
withholding . . . . . . . . . . . . . . 13
C decrease
Capital gains and losses:
tax
tax . . . . . . . . . . . . . . . . . . . . . . 26
Estimated tax on net capital
gain . . . . . . . . . . . . . . . . . . . . . 23
Qualified dividends . . . . . 19, 23
Casualty and theft losses . . . . 7
Waiver of penalty . . . . . . . . . . . 53
Change of address . . . . . . . . . . 28
Change of name . . . . . . . . . . . . . 44
Changing withholding . . . . . . 4-5
Charitable contributions . . . . . . 7
Child and dependent care
credit:
Worksheet
Worksheet . . . . . . . . . . . . . . . . 6
Child tax credit:
Worksheet
Worksheet . . . . . . . . . . . . . . . . 6
Claim of right . . . . . . . . . . . . . . . . . 7
Collection of tax:
Estimated tax (See Estimated
tax)
Withholding (See Withholding)
Comments on publication . . . . 2
Commodity credit loans . . . . . 16
states
states . . . . . . . . . . . . . . . . . . . . . 44
Compensation:
Independent contractors,
backup withholding . . . . . . . 17
Tips . . . . . . . . . . . . . . . . . . . . . . . 14
Wages and salaries . . . . . . 4-14
Credit cards . . . . . . . . . . . . . . . . . 29
overpayment
overpayment . . . . . . . . . . . . . . 28
Credits:
2005 withholding and estimated
taxes . . . . . . . . . . . . . . . . . . . . 43
credits
credits . . . . . . . . . . . . . . . . . . . 30
Deductions and Adjustments
Worksheet . . . . . . . . . . . . . . 7-8
Estimated tax against income
tax . . . . . . . . . . . . . . . . . . . . . . 44
Excess withholding on social
security or railroad retirement
taxes . . . . . . . . . . . . . . . . . . . . 44
withholding
withholding . . . . . . . . . . . . . . 13
credits
credits . . . . . . . . . . . . . . . 22, 29
Withholding allowances . . . . . . 7
for
for . . . . . . . . . . . . . . . . . . . . . . . 43
Criminal penalties:
Willfully false or fraudulent Form
W-4 . . . . . . . . . . . . . . . . . . . . . 14
payments . . . . . . . . . . . . . . . . . 16
Cumulative wage method of
withholding . . . . . . . . . . . . . . . . 9
D Annualized income installment
Deductions:
Home mortgage interest . . . . . 7
decrease . . . . . . . . . . . . . . . . . 4
Worksheet instructions . . . . 6-8
Deferred compensation,
nonqualified . . . . . . . . . . . . . . 15
Dependents:
Exemptions . . . . . . . . . . . . . . . . . 6
decrease
decrease . . . . . . . . . . . . . . . . . 4
Disabled persons:
Impairment-related work
expenses . . . . . . . . . . . . . . . . . 7
Disaster:
Waiver of penalty . . . . . . . . . . . 53
Dividends:
Backup withholding . . . . . . . . . 17
Qualified dividends, estimated
tax . . . . . . . . . . . . . . . . . . 19, 23
Underreported . . . . . . . . . . . . . 17
Divorced taxpayers:
Estimated tax credit . . . . . . . . 44
Withholding . . . . . . . . . . . . . . . 4, 5
Domestic help:
Definition . . . . . . . . . . . . . . . . . . . 4
Employment taxes . . . . . . 19, 47
Estimated tax, regular
installment method . . . . . . . 25
Withholding . . . . . . . . . . . . . . . . . 4
E individuals
withdrawal
withdrawal . . . . . . . . . . . . 19, 29
distributions
distributions . . . . . . . . . . . 15-16
Employee business expenses:
Accountable plans . . . . . . . . . . 14
Excess reimbursements or
allowances . . . . . . . . . . . . . . 14
Nonaccountable plans . . . . . . 14
Reimbursements . . . . . . . . . . . 13
Employer Identification
Numbers (EINs) . . . . . . . . . . . 17
Employers . . . . . . . . . . . . . . . . . . . 9
Excess withholding on social
security and railroad
retirement taxes . . . . . . 44, 45
Repaying withheld tax . . . . . . . 9
Tips . . . . . . . . . . . . . . . . . . . . . . . 14
Errors:
Excess withholding of social
security or railroad retirement
taxes by employer . . . . . . . . 45
Estate beneficiaries:
Underpayment penalty . . . . . . 48
Estate tax:
decedent
decedent . . . . . . . . . . . . . . . . . 7
Estates:
Estimated tax . . . . . . . . . . . . . . 22
Estimated tax:
Adjustments to income . . . . . 22
Aliens . . . . . . . . . . . . . . . . . 21, 28
Amended tax . . . . . . . . . . . . . . . 25
Annualized adjusted gross
income . . . . . . . . . . . . . . . . . . 30
method . . . . . . . . . . . . . . 25, 29
Blank worksheet . . . . . . . . . 39
income
income . . . . . . . . . . . . . . . . . . 30
credits
credits . . . . . . . . . . . . . . . . . . . 30
Change in amount . . . . . . . . . . 25
Change of address . . . . . . . . . 28
Change of name . . . . . . . . . . . 44
tax
tax . . . . . . . . . . . . . . . . . . . . . . 44
Credit card, payment by . . . . 29
overpayment
overpayment . . . . . . . . . . . . . 28
Divorced taxpayers . . . . . . . . . 44
Domestic help . . . . . . . . . . 19, 25
withdrawal
withdrawal . . . . . . . . . . . 19, 29
Employment taxes . . . . . . 19, 47
Estates and trusts . . . . . . . . . . 22
Exemptions . . . . . . . . . . . . . . . . 22
Expected adjusted gross
income . . . . . . . . . . . . . . 22, 29
income
income . . . . . . . . . . . . . . 22, 29
credits
credits . . . . . . . . . . . . . . . 22, 29
Failure to pay penalty . . . . . . . 47
Farmers and fishermen . . . . 21,
24, 25, 47
Fiscal year taxpayers . . . . . . . 25
Form 1040-ES . . . . . . . . . . . . . 22
individuals . . . . . . . . . . . 19, 24
How to figure . . . . . . . . . . . 22, 25
13:46 - 5-APR-2006
How to pay . . . . . . . . . . . . . . . . 28
Illustrated examples . . . . . . . . 29
Instructions for Worksheet 2-8,
tax
tax . . . . . . . . . . . . . . . . . . . . . . 26
Itemized deductions . . . . . . . . 22
Married taxpayers . . . . . . . . . . 20
Net capital gain . . . . . . . . 23, 26
No standard deduction . . . . . . 22
Nonresident aliens . . . . . 26, 28
Overpayment . . . . . . . . . . . . . . 28
Payment-vouchers . . . . . . . . . 28
Payments not required . . . . . . 28
Qualified dividends . . . . . 19, 23
benefits
benefits . . . . . . . . . . . . . . . . . . 22
method
method . . . . . . . . . . . . . . 25, 29
payment
payment . . . . . . . . . . . . . 24, 29
Required estimated tax
payment . . . . . . . . . . . . . 29, 30
Safe harbor for higher income
individuals . . . . . . . . . . . . . . . 19
income
income . . . . . . . . . . . . . . 22, 26
Separate returns . . . . . . . . . . . 44
Sick pay . . . . . . . . . . . . . . . . . . . 15
Social security benefits . . . . . 22
Standard deduction . . . . . 22, 26
payments
payments . . . . . . . . . . . . . . . . 24
Types of taxes included . . . . . 19
Underpayment penalty . . . . . . . 2,
25, 47
When to pay . . . . . . . . . . . . . . . 24
When to start payments . . . . . 25
pay
pay . . . . . . . . . . . . . . . . . . . . . . 19
Who must pay . . . . . . . . . 19, 20
Estimated tax worksheets:
2006 annualized estimated tax
worksheet . . . . . . . . . . . . . . . 39
worksheet
worksheet . . . . . . . . . . . . . . . 31
Amended estimated tax . . . . . 25
Capital gains . . . . . . . . . . . 36, 41
reduction
reduction . . . . . . . . . . . . 35, 40
exemption
exemption . . . . . . . . . . . . . . . 35
phaseout
phaseout . . . . . . . . . . . . 35, 40
Qualified dividends . . . . . 23, 41
benefits
benefits . . . . . . . . . . . . . . . . . . 34
Self-employment tax . . . . . . . . 34
illustrated
illustrated . . . . . . . . . . . . . . . . 29
Social security benefits . . . . . 34
Excess social security or
railroad retirement tax
withholding . . . . . . . . 43, 44-45
Nonrailroad employees
worksheet . . . . . . . . . . . . . . . 45
worksheets
worksheets . . . . . . . . . . . . . . 45
withholding
withholding . . . . . . . . . . . . . 9-13
Age 65 or older . . . . . . . . . . . . . 13
Page 63
Page 64 of 67 of Publication 505
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Exemption from withholding
(Cont.)
Blind persons . . . . . . . . . . . . . . 13
Claiming . . . . . . . . . . . . . . . . . . . 13
Good for only one year . . . . . 13
Itemized deductions . . . . . . . . 13
Students . . . . . . . . . . . . . . . . . . . 12
Exemptions:
Dependents . . . . . . . . . . . . . . . . . 6
income
income . . . . . . . . . . . . . . 22, 35
Hurricane Katrina . . . . . . . 22, 35
Worksheet
Worksheet . . . . . . . . . . . . . . . . 5
Reduction of . . . . . . . . . 6, 22, 26
Self . . . . . . . . . . . . . . . . . . . . . . . . . 6
Spouse . . . . . . . . . . . . . . . . . . . . . 6
Withholding allowances . . . . . . 5
Worksheets . . . . . . . . . . . . 35, 40
Expenses:
Allowances . . . . . . . . . . . . . . . . 13
Standard mileage rates . . . . . . 2,
18
F Form W-9 . . . . . . . . . . . . . . . . . . . 17
Failure to comply with tax laws
(See Penalties)
Farmers:
Estimated tax . . . . . . 21, 24, 25,
47
Fiscal years . . . . . . . . . . . . . . . . 25
Gross income . . . . . . . . . . . . . . 21
Joint returns . . . . . . . . . . . . . . . 21
payment
payment . . . . . . . . . . . . . . . . . 24
Underpayment penalty . . . . . 47,
53
Waiver of underpayment
penalty . . . . . . . . . . . . . . . . . . 54
farmworkers
farmworkers . . . . . . . . . . . . . . 4
Figures (See Tables and figures)
Fiscal years:
Estimated tax . . . . . . . . . . . . . . 25
Farmers and fishermen . . . . . 25
Withholding tax credit . . . . . . . 44
Fishermen:
Backup withholding, fishing boat
operators’ payments . . . . . . 17
Estimated tax . . . . . . 21, 24, 25,
47
Fiscal years . . . . . . . . . . . . . . . . 25
Gross income . . . . . . . . . . . . . . 21
Joint returns . . . . . . . . . . . . . . . 21
payment
payment . . . . . . . . . . . . . . . . . 24
Underpayment penalty . . . . . 47,
53
Waiver of underpayment
penalty . . . . . . . . . . . . . . . . . . 54
Form 1040-ES . . . . . . . . 19, 22, 28
Form 1040-ES(NR) . . . . . . . . . . . 21
Form 1040X . . . . . . . . . . . . . . . . . 43
Form 1041-ES . . . . . . . . . . . . . . . 22
Form 1099 series . . . . . . . . 17, 43
Form 2210 . . . . . . . . . . . . 48, 50, 51
Form 2210-F . . . . . . . . . . . . . . . . . 53
Form 8822 . . . . . . . . . . . . . . . . . . . 28
Form W-2 . . . . . . . . . . . . . . . . . . . 43
Form W-2c . . . . . . . . . . . . . . . . . . 43
Form W-2G . . . . . . . . . . . . . . 16, 43
Page 64
Form W-4 (See Form W-4
worksheets)
Illustrated example . . . . . . . . 8, 9
Form W-4 worksheets:
worksheets
worksheets . . . . . . . . . . . . . . . 8
Completing of . . . . . . . . . . . . . . . 5
Deductions and Adjustments
Worksheet . . . . . . . . . . . . . . . . 8
Deductions and adjustments
worksheet instructions . . . . . 6
claimed
claimed . . . . . . . . . . . . . . . . . 6, 8
Worksheet
Worksheet . . . . . . . . . . . . . . 5, 8
Two-Earner/Two-Job
Worksheet . . . . . . . . . . . . . . . . 8
Withholding allowances . . . . . . 5
Form W-4, Employee’s
Allowance Withholding
Certificate . . . . . . . . . . . . . . . 4-13
Form W-4P . . . . . . . . . . . . . . . . . . 15
Form W-4S . . . . . . . . . . . . . . . . . . 15
Form W-4V . . . . . . . . . . . . . . . . . . 16
Form W-7 . . . . . . . . . . . . . . . . . . . 17
Fraud:
Form W-4 statements . . . . . . . 14
Free tax services . . . . . . . . . . . . 61
Fringe benefits . . . . . . . . . . . 14-15
G expenses . . . . . . . . . . . . . . . . . . 7
Gambling:
Form W-2G . . . . . . . . . . . . . . . . 43
Losses . . . . . . . . . . . . . . . . . . 7, 43
Winnings . . . . . . . . . . . . . . . . . . 43
Gross income . . . . . . . . . . . . . . . 21
Farming . . . . . . . . . . . . . . . . . . . 21
Fishing . . . . . . . . . . . . . . . . . . . . 21
H Estimated tax . . . . . . . . . . . . . . 21
Head of household:
Worksheet
Worksheet . . . . . . . . . . . . . . . . 6
Withholding allowance . . . . . . . 6
Help (See Tax help)
Higher income individuals:
harbor
harbor . . . . . . . . . . . . . . . . . . . 19
payment
payment . . . . . . . . . . . . . . . . . 24
Underpayment penalty . . . . . . 47
Household workers (See
Domestic help)
Hurricane Katrina, additional
exemption amount . . . . . . . . 22
exemptions
exemptions . . . . . . . . . . . . . . . 35
I Salary reduction contributions:
Independent contractors:
Backup withholding . . . . . . . . . 17
Individual retirement
arrangements (IRAs): (See
also Pensions) (See also
Retirement plans) . . . . . . . . . . 15
Income limits . . . . . . . . . . . . . 2, 18
SIMPLE IRA salary reduction
contributions . . . . . . . . . . . 2, 18
Interest income:
Backup withholding . . . . . . . . . 17
Underreported . . . . . . . . . . . . . 17
Itemized deductions:
Deductions and Adjustments
Worksheet . . . . . . . . . . . . . . . . 6
Estimated tax, expected taxable
income . . . . . . . . . . . . . . . . . . 22
withholding
withholding . . . . . . . . . . . . . . 13
Gambling losses . . . . . . . . . . . 43
Phaseout of . . . . . . . . . . . . . . 7, 22
Reduction . . . . . . . . . . . . . . . . 7, 22
Worksheets . . . . . . . . . . 7, 35, 40
J
Joint returns:
Excess withholding on social
security and railroad
retirement taxes . . . . . . . . . . 44
Farmers and fishermen . . . . . 21
Underpayment penalty . . . . . . 48
M Choosing to withhold . . . . . . . 16
Marital status:
Form W-4 worksheet . . . . . . . . 5
Withholding rate . . . . . . . . . . . . . 5
Married taxpayers: (See also
Joint returns) . . . . . . . . . . . . . . . 44
Estimated tax . . . . . . . . . . . . . . 20
Marital status . . . . . . . . . . . . . . . 5
Withholding allowances . . . . . . 5
expenses
Military retirement pay . . . . 4, 15
Missing children, photographs
of . . . . . . . . . . . . . . . . . . . . . . . . . . 3
More information (See Tax help)
N payment
Name change . . . . . . . . . . . . . . . 44
Noncitizens:
Withholding . . . . . . . . . . . . . . . . . 5
Nonqualified deferred
compensation . . . . . . . . . . . . . 15
Nonresident aliens:
Estimated tax . . . . . . . . . . 21, 28
Individual taxpayer identification
numbers (ITINs) . . . . . . . . . . 17
O Rollovers . . . . . . . . . . . . . . . . . 15-16
Overpayment:
tax
tax . . . . . . . . . . . . . . . . . . . . . . 28
P Safe harbors:
withholding
withholding . . . . . . . . . . . . . . . . 9
Patronage dividends:
Backup withholding . . . . . . . . . 17
Payment-vouchers . . . . . . . . . . 28
Penalties:
Backup withholding . . . . . . . . . 17
tax
tax . . . . . . . . . . . . . . . . . . . . . . 47
tax
tax . . . . . . . . . . . . . . . . . . . . . . 47
Waiver of . . . . . . . . . . . . . . . . . . 53
Willfully false or fraudulent Form
W-4 . . . . . . . . . . . . . . . . . . . . . 14
Withholding allowances . . . . . 14
13:46 - 5-APR-2006
Pensions: (See also Individual
retirement arrangements (IRAs);
Retirement plans) . . . . 2, 15-16,
18
Rollovers . . . . . . . . . . . . . . . 15-16
Wages and salaries withholding
rules compared . . . . . . . . . . 15
Personal allowances:
Reduction of . . . . . . . . . . . . . . . . 6
Personal Allowances
Worksheet . . . . . . . . . . . . . . . 5-6
Personal exemptions (See
Exemptions)
Publication 919 . . . . . . . . . . . . . . . 9
Publications (See Tax help)
Q
Qualified dividends . . . . . . 19, 23
R
Railroad retirement benefits:
Estimated tax . . . . . . . . . . . . . . 22
Railroad retirement tax:
Excess withholding . . . . . 43, 44,
45
Worksheets . . . . . . . . . . . . . . 46
Refund claims . . . . . . . . . . . . . . 45
Regular installment method,
estimated tax . . . . . . . . . 25, 29
Reimbursements . . . . . . . . . . . . 13
Excess . . . . . . . . . . . . . . . . . . . . 14
Rents, profits, or other gains:
Backup withholding . . . . . . . . . 17
Reporting:
Fringe benefits . . . . . . . . . . . . . 15
Gambling winnings . . . . . . . . . 16
Tips to employer . . . . . . . . . . . 14
payment . . . . . . . . . . . . . . . . . . 24
Required estimated tax
payment . . . . . . . . . . . . . . 29, 30
Retirement plans:
IRAs (See Individual retirement
arrangements (IRAs))
Pension plans (See Pensions)
Rollovers . . . . . . . . . . . . . . . 15-16
State or local deferred
payments
payments . . . . . . . . . . . . . . . . 15
Royalties:
Backup withholding . . . . . . . . . 17
S
2005 estimated tax for higher
income individuals . . . . . . . . 19
Salaries (See Compensation)
SIMPLE IRAs . . . . . . . . . . . . 2, 18
rule
rule . . . . . . . . . . . . . . . . . . . . . . . 24
Self-employment tax . . . . 22, 26
Separate returns:
Estimated tax credit . . . . . . . . 44
Underpayment penalty . . . . . . 48
Withholding tax credit . . . . . . . 43
Sick pay . . . . . . . . . . . . . . . . . . . . . 15
SIMPLE IRAs . . . . . . . . . . . . . . 2, 18
Single marital status . . . . . . . . . 5
Page 65 of 67 of Publication 505
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Social security benefits:
Choosing to withhold . . . . . . . 16
Estimated tax . . . . . . . . . . . . . . 22
Social security taxes:
Domestic help . . . . . . . . . . . . . . 19
Excess withholding . . . . . 43, 44
Worksheet . . . . . . . . . . . . . . . 45
obligation
obligation . . . . . . . . . . . . . . . . . 3
Taxpayer identification numbers
(TINs) . . . . . . . . . . . . . . . . . . . 17
Spouse: (See also Married
taxpayers) . . . . . . . . . . . . . . . . . . 5
Exemption . . . . . . . . . . . . . . . . . . 6
Marital status . . . . . . . . . . . . . . . 5
Worksheet
Worksheet . . . . . . . . . . . . . . . . 6
Standard deduction . . . . . 22, 26
Standard mileage rates . . . . . . . 2,
18
State and local income taxes
and property taxes . . . . . . . . . 7
State or local deferred
payments
payments . . . . . . . . . . . . . . . . . 15
Students . . . . . . . . . . . . . . . . . . . . 12
publication
publication . . . . . . . . . . . . . . . . . 2
Supplemental wages . . . . . 13-14
T credit . . . . . . . . . . . . . . . . . . 2, 18
Tables and figures:
2006 estimated tax worksheet
(Figure 2-B) . . . . . . . . . . . . . . 22
Annualized income installment
method worksheet, estimated
tax (Figure 2-C) . . . . . . . . . . 26
Annualized income installment
method, Form 2210 (Figure
4-C) . . . . . . . . . . . . . . . . . . . . . 54
Annualized income installment
method, illustrated example
2-E)
2-E) . . . . . . . . . . . . . . . . . . . . . 31
Annualized income installment
method, underpayment
penalty (Figure 4-C) . . . . . . 54
Calendar to determine days
4-1)
4-1) . . . . . . . . . . . . . . . . . . . . . 51
Credits for Form W-4
deductions and adjustments
worksheet (Table 1-1) . . . . . 8
Dependents, standard
deduction worksheet (Table
2-5) . . . . . . . . . . . . . . . . . . . . . 42
Do you have to pay estimated
tax? (Figure 2-A) . . . . . . . . . 20
Due dates, estimated tax (Table
2-2) . . . . . . . . . . . . . . . . . . . . . 25
Exemption from withholding on
1-B)
1-B) . . . . . . . . . . . . . . . . . . . . . 13
Form 2210, short method
illustrated (Figure 4-A) . . . . 54
Form W-4, illustrated example
(Figure 1-A) . . . . . . . . . . . . . . . 9
Railroad retirement, maximum
3-1)
3-1) . . . . . . . . . . . . . . . . . . . . . 44
Regular installment method,
illustrated example estimated
tax (Figure 2-D) . . . . . . . . . . 31
Regular installment method,
illustrated example Form
2210 (Figure 4-B) . . . . . . . . 54
Regular installment method,
illustrated example
underpayment penalty (Figure
4-B) . . . . . . . . . . . . . . . . . . . . . 54
Social security, maximum
3-1)
3-1) . . . . . . . . . . . . . . . . . . . . . 44
Standard deduction worksheet
2-5)
2-5) . . . . . . . . . . . . . . . . . . . . . 42
4-2)
4-2) . . . . . . . . . . . . . . . . . . . . . 51
Underpayment penalty,
calendar to determine number
of days payment is late (Table
4-1) . . . . . . . . . . . . . . . . . . . . . 51
Worksheets, where to find
(Table 2-1) . . . . . . . . . . . . . . . 19
Tax help . . . . . . . . . . . . . . . . . . . . . 61
Taxpayer Advocate . . . . . . . . . . 61
Taxpayer identification
numbers (TINs) . . . . . . . . . . . 17
Tips . . . . . . . . . . . . . . . . . . . . . . . . . 14
Total income . . . . . . . . . . . . . . . . 22
Trust beneficiaries:
Underpayment penalty . . . . . . 48
TTY/TDD information . . . . . . . . 61
Two jobs:
Withholding allowances . . . . . . 5
Worksheet
Worksheet . . . . . . . . . . . . . . . . . 8
U Retirement savings plans . . . . 2,
penalty
penalty . . . . . . . . . . . . . . . . . 47-54
method
method . . . . . . . . . . . . . . . . . . 50
Amended estimated tax . . . . . 25
Amended returns . . . . . . . . . . . 48
Annualized income installment
method . . . . . . . . . . . . . . . . . . 50
Beneficiaries of estates and
trusts . . . . . . . . . . . . . . . . . . . . 48
Exceptions . . . . . . . . . . . . . . . . . 48
Farmers and fishermen . . . . 47,
53, 54
Figuring . . . . . . . . 47, 49, 50, 51
individuals
individuals . . . . . . . . . . . . . . . 47
Joint returns . . . . . . . . . . . . . . . 48
Late payments, calendar to
determine number of days
(Table 4-1) . . . . . . . . . . . . . . . 51
Lowering or eliminating . . . . . 48
period
period . . . . . . . . . . . . . . . . . . . 47
No penalty . . . . . . . . . . . . . . . . . 47
No tax liability last year
exception . . . . . . . . . . . . . . . . 49
withholding
withholding . . . . . . . . . . 48, 50
period
period . . . . . . . . . . . . . . . . . . . 47
Penalty rate . . . . . . . . . . . . . . 2, 47
Penalty thresholds . . . . . . . . . . 47
method
method . . . . . . . . . . . . . . . . . . 50
payment
payment . . . . . . . . . . . . . . . . . 49
Schedule AI . . . . . . . . . . . . . . . . 50
Separate returns . . . . . . . . . . . 48
Waiver . . . . . . . . . . . . . . . . . . . . . 53
When charged . . . . . . . . . . . . . 48
compensation
compensation . . . . . . . . . . . . . 16
W Fringe benefits . . . . . . . . . . . . . 14
Wages and salaries (See
Compensation)
Waiver of penalty . . . . . . . . 47, 53
What’s New for 2005:
rates
rates . . . . . . . . . . . . . . . . . . 2, 47
Excess social security or
railroad retirement tax
withholding . . . . . . . . . . . . . . 43
What’s New for 2006:
vehicles
vehicles . . . . . . . . . . . . . . . 2, 18
AMT exemption amount
decreased . . . . . . . . . . . . . 3, 19
Certain credits no longer
allowed against alternative
minimum tax (AMT) . . . . 3, 19
Clean renewable energy bond
credit . . . . . . . . . . . . . . . . . . 2, 18
Clean-fuel vehicles . . . . . . . 2, 18
Earned income credit . . . . . 2, 18
exemption
exemption . . . . . . . . . . . . . 2, 18
Itemized deductions . . . . . . 2, 18
Nonconventional source fuel
Personal exemptions . . . . . 2, 18
credits
credits . . . . . . . . . . . . . . . . . 2, 18
Worksheets:
18
Standard mileage rates . . . . . . 2,
18
Withholding . . . . . . . . . . . . . . . 4-17
Allowances . . . . . . . . . . 4, 5, 6, 8
Personal Allowances
Worksheet . . . . . . . . . . . . 5, 8
Amended returns . . . . . . . . . . . 43
Amount of tax withheld, Form
W-4 . . . . . . . . . . . . . . . . . . . . . . 4
Annuities . . . . . . . . . . . . . . . 15-16
Backup withholding (See
Backup withholding)
Changing . . . . . . . . . . . . . . . . . . . 4
Checking amount of . . . . . . . . . 5
Choosing not to withhold . . . . 16
states
states . . . . . . . . . . . . . . . . . . . 44
tax
tax . . . . . . . . . . . . . . . . . . . . . . 43
Cumulative wage method . . . . 9
Deductions and Adjustments
Worksheet . . . . . . . . . . . . . . . . 8
Deductions and adjustments
worksheet instructions . . . . . 6
Divorced taxpayers . . . . . . . . 4, 5
Domestic help . . . . . . . . . . . . . . . 4
Employers’ rules . . . . . . . . . . . . 9
Estimated tax . . . . . . . . . . . . . . 24
Excess social security and
taxes
taxes . . . . . . . . . . . . . . . . 43, 44
Exemption from . . . . . . . . . . . . . 9
Farmworkers . . . . . . . . . . . . . . . . 4
collection
collection . . . . . . . . . . . . . . . . . 2
Federal payments . . . . . . . . . . 16
Fiscal years . . . . . . . . . . . . . . . . 44
13:46 - 5-APR-2006
filing
filing . . . . . . . . . . . . . . . . . . . . . 43
Form W-2 . . . . . . . . . . . . . . . . . . 43
Form W-2c . . . . . . . . . . . . . . . . . 43
Form W-2G . . . . . . . . . . . . 16, 43
Form W-4 . . . . . . . . . . . . . . . . . . . 4
Gambling winnings . . . . . 16, 43
Getting right amount of tax
withheld . . . . . . . . . . . . . . . . . . 9
Household workers . . . . . . . . . . 4
Marital status . . . . . . . . . . . . . . . 5
Married taxpayers . . . . . . . . . . . 5
Noncitizens . . . . . . . . . . . . . . . . . 5
Nonperiodic payments . . . . . . 15
Part-year method . . . . . . . . . . . . 9
Penalties . . . . . . . . . . . . . . . . . . 14
Pensions . . . . . . . . . . . . . . . . . . 15
Periodic payments . . . . . . . . . . 15
benefits
benefits . . . . . . . . . . . . . . . . . . 16
Repaying withheld tax . . . . . . . 9
Rollovers . . . . . . . . . . . . . . . 15-16
Salaries and wages . . . . . . . . . 4
Separate returns . . . . . . . . . . . 43
Sick pay . . . . . . . . . . . . . . . . . . . 15
Single taxpayers . . . . . . . . . . . . 5
tax
tax . . . . . . . . . . . . . . . . . . . . 3, 16
Tips . . . . . . . . . . . . . . . . . . . . . . . 14
Two jobs . . . . . . . . . . . . . . . . . . . . 5
Types of income . . . . . . . . . . . . 4
Underpayment penalty . . . . . 48,
50
compensation
compensation . . . . . . . . . . . . 16
2006 annualized estimated tax
2-8)
2-8) . . . . . . . . . . . . . . . . . . . . . 39
worksheet
worksheet . . . . . . . . . . . . . . . 31
Age 65 or older or blind
exemption from withholding
(Worksheet 1-3) . . . . . . . . . . 13
Amended estimated tax
(Worksheet 2-7) . . . . . . . . . . 37
Amended estimated tax,
2-7)
2-7) . . . . . . . . . . . . . . . . . . . . . 25
Capital gains:
Worksheet 2-11 . . . . . . . . . . 41
Worksheet 2-6 . . . . . . . . . . . 36
Dependents age 65 or older or
blind exemption from
1-4)
1-4) . . . . . . . . . . . . . . . . . . . . . 13
Estimated tax (See Estimated
tax worksheets)
Excess railroad retirement tax
3-2)
3-2) . . . . . . . . . . . . . . . . . . . . . 45
Excess social security and tier 1
railroad retirement tax
(Worksheet 3-2) . . . . . . . . . . 46
Excess social security tax
3-1)
3-1) . . . . . . . . . . . . . . . . . . . . . 45
Excess social security tax,
nonrailroad employee
(Worksheet 3-1) . . . . . . . . . . 46
Excess social security tax,
nonrailroad employee,
3-1)
3-1) . . . . . . . . . . . . . . . . . . . . . 45
Page 65
Page 66 of 67 of Publication 505
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Worksheets: (Cont.)
Excess tier 2 railroad retirement
tax (Worksheet 3-3) . . . . . . 46
Exemption amount reduction
(Worksheet 2-10) . . . . . . . . 40
Exemption amount reduction
(Worksheet 2-4) . . . . . . . . . . 35
Form W-4 (See Form W-4
worksheets)
Page 66
Hurricane Katrina (Worksheet
2-5) . . . . . . . . . . . . . . . . . . . . . 35
Itemized deductions phaseout:
Worksheet 2-3 . . . . . . . . . . . 35
Worksheet 2-9 . . . . . . . . . . . 40
Itemized deductions, Form W-4
(Worksheet 1-2) . . . . . . . . . . . 7
Personal allowances reduction
(Worksheet 1-1) . . . . . . . . . . . 6
Worksheet
Worksheet . . . . . . . . . . . . . . 5-6
Qualified dividends:
Worksheet 2-11 . . . . . . . . . . 41
Worksheet 2-6 . . . . . . . . . . . 36
Railroad retirement benefits
(Worksheet 2-1) . . . . . . . . . . 34
Self-employment tax
(Worksheet 2-2) . . . . . . . . . . 34
13:46 - 5-APR-2006
Self-employment tax, illustrated
(Worksheet 2-2) . . . . . . . . . . 29
Social security benefits
(Worksheet 2-1) . . . . . . . . . . 34
■
Page 67 of 67 of Publication 505 13:46 - 5-APR-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Tax Publications for Individual Taxpayers See How To Get Tax Help for a variety of ways to get publications, including by computer,
phone, and mail.

General Guides
1 Your Rights as a Taxpayer
17 Your Federal Income Tax (For
Individuals)
334 Tax Guide for Small Business (For
Individuals Who Use Schedule C or
C-EZ
509 Tax Calendars for 2006
553 Highlights of 2005 Tax Changes
910 Guide to Free Tax Services
Specialized Publication
3 Armed Forces’ Tax Guide
54 Tax Guide for United States Citizens
and Residents Aliens Abroad
225 Farmer’s Tax Guide
463 Travel, Entertainment, Gift, and Car
Expenses
501 Exemptions, Standard Deduction, and
Filing Information
502 Medical and Dental Expenses
503 Child and Dependent Care Expenses
504 Divorced or Separated Individuals
505 Tax Withholding and Estimated Tax
508 Tax Benefits for Work-Related
Education
514 Foreign Tax Credit for Individuals
516 United States Government Civilian
Employees Stationed Abroad
517 Social Security and Other Information
for Members of the Clergy and
Religious Workers
519 United States Tax Guide for Aliens
520 Scholarships and Fellowships
521 Moving Expenses
523 Selling Your Home
524 Credit for the Elderly or the Disabled
525 Taxable and Nontaxable Income
526 Charitable Contributions
527 Residential Rental Property
529 Miscellaneous Deductions
530 Tax Information for First-Time
Homeowners
531 Reporting Tip Income
534 Depreciating Property Placed in Service
Before 1987
536 Net Operating Losses for Individuals,
Estates, and Trusts
537 Installment Sales
541 Partnerships
544 Sales and Other Dispositions of Assets
547 Casualties, Disasters, and Thefts
550 Investment Income and Expenses
551 Basis of Assets
552 Recordkeeping for Individuals
554 Older Americans’ Tax Guide
555 Community Property
556 Examination of Returns, Appeal Rights,
and Claims for Refund
559 Survivors, Executors, and
Administrators
561 Determining the Value of Donated
Property
564 Mutual Fund Distributions
570 Tax Guide for Individuals With Income
From United States Possessions
571 Tax-Sheltered Annuity Plans (403(b)
Plans)
575 Pension and Annuity Income
Spanish Language Publications
584 Casualty, Disaster, and Theft Loss
Workbook (Personal-Use Property)
579SP Cómo Preparar la Declaración de
587 Business Use of Your Home (Including
Use by Day-care Providers)
594SP Qué es lo que Debemos Saber sobre el
590 Individual Retirement Arrangements
593 Tax Highlights for United States Citizens
596SP Crédito por Ingreso del Trabajo
and Residents Going Abroad
594 The Internal Revenue Service Collection
Process
596 Earned Income Credit
1544SP Informe de Pagos en Efectivo en
721 Tax Guide to United States Civil Service
Retirement Benefits
901 United States Tax Treaties
907 Tax Highlights for Persons with
Disabilities
908 Bankruptcy Tax Guide
915 Social Security and Equivalent Railroad
Retirement Benefits
919 How Do I Adjust My Tax Withholding?
925 Passive Activity and At-Risk Rules
926 Household Employer’s Tax Guide
929 Tax Rules for Children and Dependents
936 Home Mortgage Interest Deduction
946 How To Depreciate Property
947 Practice Before the Internal Revenue
Service and Power of Attorney
950 Introduction to Estate and Gift Taxes
967 Internal Revenue Service Will Figure
Your Tax
969 Medical Savings Accounts
970 Tax Benefits for Education
971 Innocent Spouse Relief
972 Child Tax Credit (For Individuals Sent
Here From the Form 1040 or 1040A
Instructions)
1542 Per Diem Rates
1544 Reporting Cash Payments of Over
$10,000
1546 The Taxpayer Advocate Service of the
Internal Revenue Service
1SP Derechos del Contribuyente
Impuesto Federal
Proceso de Cobro del IRS
850 English-Spanish Glossary of Words and
Phrases Used in Publications Issued
by the Internal Revenue Service
Exceso de $10,000 (Recibidos en una
Ocupación o Negocio)

Commonly Used Tax Forms See How To Get Tax Help for a variety of ways to get forms, including by computer, phone, and mail.

Form Number and Form Title Form Number and Form Title
1040 United States Individual Income Tax Return 1040X Amended United States Individual Income Tax Return
Schedule A & B Itemized Deductions & Interest and Ordinary 2106 Employee Business Expenses
Dividends 2106-EZ Unreimbursed Employee Business Expenses
Schedule C Profit or Loss From Business 2210 Underpayment of Estimated Tax by Individuals,
Schedule C-EZ Net Profit From Business Estates, and Trusts
Schedule D Capital Gains and Losses 2441 Child and Dependent Care Expenses
Schedule D-1 Continuation Sheet for Schedule D 2848 Power of Attorney and Declaration of Representative
Schedule E Supplemental Income and Loss 3903 Moving Expenses
Schedule EIC Earned Income Credit 4562 Depreciation and Amortization
Schedule F Profit or Loss From Farming 4868 Application for Automatic Extension of Time To File
Schedule H Household Employment Taxes United States Individual Income Tax Return
Schedule J Income Averaging For Farmers and Fishermen 4952 Investment Interest Expense Deduction
Schedule R Credit for the Elderly or the Disabled 5329 Additional Taxes on Qualified Plans (including
Schedule SE Self-Employment Tax Individual Retirement Arrangements) and Other
1040A United States Individual Income Tax Return Tax-Favored Accounts
Schedule 1 Interest and Ordinary Dividends for Form 1040A 6251 Alternative Minimum Tax--Individuals
Filers 8283 Non-cash Charitable Contributions
Schedule 2 Child and Dependent Care Expenses for Form 8582 Passive Activity Loss Limitations
1040A Filers 8606 Nondeductible Individual Retirement Arrangements
Schedule 3 Credit for the Elderly or the Disabled for Form 1040A 8812 Additional Child Tax Credit
Filers 8822 Change of Address
1040EZ Income Tax Return for Single and Joint Filers With No 8829 Expenses for Business Use of Your Home
Dependents 8863 Education Credits
1040-ES Estimated Tax for Individuals 9465 Installment Agreement Request

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